In a consultative doc printed on Dec. 14, the Basel Committee on Banking Supervision of the Financial institution for Worldwide Settlements (BIS) proposed a number of measures on focused adjustment to its customary on banks’ publicity to crypto belongings.
The doc is the results of the evaluation work carried out throughout 2023, which helped the committee formulate amendments to its authentic prudential requirements for banks’ publicity to stablecoins, printed in December 2022.
Proposed adjustments relate primarily to the composition of the reserve belongings of stablecoins, particularly for crypto belongings, categorized underneath Group 1b within the prudential requirements, “topic to capital necessities primarily based on the chance weights of underlying exposures.”
The committee proposes to focus on the redemption dangers in intervals of maximum stress when the stablecoin issuers would possibly face mass claims for withdrawal and a ensuing fireplace sale. The regulating physique suggests proscribing stablecoin exposures to longer-term maturities by introducing a most maturity restrict for particular person reserve belongings.
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Ought to longer-term belongings be allowed as reserve belongings, the committee believes these should overcollateralize the claims of stablecoin holders. The quantity of additional collateral ought to be sufficient to offset potential decreases in asset values, so the stablecoin would stay redeemable at its pegged worth, even throughout difficult occasions and in unstable markets.
The doc additionally highlights the factors of credit score high quality, suggesting an inventory of reserve belongings with excessive credit score high quality, appropriate for stablecoins issuers: central financial institution reserves, marketable securities assured by sovereigns and central banks with excessive credit score high quality, and deposits at excessive credit score high quality banks.
The committee will accumulate feedback on the proposed amendments till March 28, 2024. Amended or not, the prudential requirements for stablecoin exposures have an implementation date of Jan. 1, 2025.
The Basel Committee contains central banks and monetary authorities from 28 jurisdictions and is a discussion board for regulatory cooperation on banking supervisory issues. It issued a earlier session paper on the prudential requirements for stablecoins publicity in October 2023. That doc proposed requiring banks to offer quantitative knowledge on exposures to crypto belongings and the corresponding capital and liquidity necessities.
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