The Basel Committee Proposes Changes to Standards on Banks’ Exposure to Crypto Assets
The Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) has released a consultative document outlining proposed measures for targeted adjustments to its standard on banks’ exposure to crypto assets. These proposals are based on a review conducted in 2023, which led to amendments to the original prudential standards published in December 2022.
Changes to Composition of Reserve Assets
The proposed changes primarily focus on the composition of reserve assets for stablecoins, particularly those classified under Group 1b in the prudential standards. The committee suggests introducing a maximum maturity limit for individual reserve assets to mitigate redemption risks during periods of extreme stress. Longer-term assets may be allowed as reserve assets if they overcollateralize stablecoin claims, ensuring their redeemability at their pegged value even in challenging and volatile markets.
Criteria for Credit Quality
The document also highlights criteria for credit quality, offering a list of suitable reserve assets for stablecoin issuers. These include central bank reserves, marketable securities guaranteed by sovereigns and high-credit-quality central banks, and deposits at high-credit-quality banks.
Comment Period and Implementation Date
The Basel Committee is accepting comments on the proposed amendments until March 28, 2024. Regardless of any amendments, the prudential standards for stablecoin exposures are set to be implemented on January 1, 2025.
About the Basel Committee
The Basel Committee comprises central banks and financial authorities from 28 jurisdictions and serves as a forum for regulatory cooperation on banking supervisory matters. In October 2023, the committee issued a consultation paper that suggested requiring banks to provide quantitative data on their exposures to crypto assets, as well as corresponding capital and liquidity requirements.
Hot Take: Basel Committee Seeks to Strengthen Stability of Stablecoins
The Basel Committee’s proposed changes to standards on banks’ exposure to crypto assets aim to enhance the stability and resilience of stablecoins. By addressing redemption risks and establishing criteria for credit quality, the committee seeks to mitigate potential challenges during times of extreme stress and market volatility. These measures are crucial in safeguarding the value and redeemability of stablecoins, ensuring their continued role as reliable digital assets in the financial system. The committee’s consultation process provides an opportunity for industry stakeholders to contribute their perspectives and shape the future regulatory framework for stablecoin exposures.
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