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Basel Committee suggests introducing maturity limits for stablecoin reserve property


The Basel Committee on Banking Supervision of the Financial institution for Worldwide Settlements (BIS) proposed a number of measures on focused adjustment to its commonplace on banks’ publicity to cryptoassets. A consultative doc was published on the BIS web site on Dec. 14. 

The doc is the results of the assessment work performed throughout 2023, which helped the committee formulate amendments to its unique prudential requirements for banks’ publicity to stablecoins, published in December 2022.

Proposed modifications relate primarily to the composition of the reserve property of stablecoins, particularly for crypto property, categorised underneath Group 1b within the prudential requirements, “topic to capital necessities primarily based on the danger weights of underlying exposures.”

The committee proposes to focus on the redemption dangers in durations of utmost 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 property.

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Ought to longer-term property be allowed as reserve property, the committee believes these should overcollateralize the claims of stablecoin holders. The quantity of additional collateral needs 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 risky markets.

The doc additionally highlights the factors of credit score high quality, suggesting an inventory of reserve property 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 gather 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 includes central banks and monetary authorities from 28 jurisdictions and is a discussion board for regulatory cooperation on banking supervisory issues. It issued a previous consultation paper on the prudential requirements for stablecoins publicity in October 2023. That doc proposed requiring banks to supply quantitative information on exposures to crypto property and the corresponding capital and liquidity necessities.

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