The Basel Committee on Banking Supervision, a part of the Bank for International Settlements (BIS), has proposed measures to enhance the stability of stablecoins. These measures aim to refine prudential standards for stablecoin exposure and address potential risks associated with these digital assets.
The first proposal focuses on mitigating redemption risks during periods of extreme stress. The committee suggests imposing a maximum maturity limit for individual reserve assets to restrict stablecoin exposures to longer-term maturities. This measure aims to safeguard against abrupt and large-scale withdrawal demands that could lead to fire sales. Additionally, if longer-term assets are allowed, over-collateralization is required to provide a buffer against potential declines in asset values and ensure stablecoins remain redeemable at their pegged value.
The second proposal aims to establish credit quality criteria for reserve assets. The committee suggests a list of suitable reserve assets for stablecoin issuers, including central bank reserves, marketable securities guaranteed by sovereigns and high-credit-quality central banks, and deposits at banks with a high credit rating. By specifying assets with high credit quality, the committee aims to bolster the stability of stablecoins and reinforce their ability to maintain value, especially in volatile market conditions.
The Basel Committee is inviting comments on these proposed amendments until March 28, 2024. The prudential standards for stablecoin exposures are scheduled for implementation on January 1, 2025. These recommendations reflect the ongoing efforts of global regulatory bodies to address potential risks associated with stablecoins and strengthen the resilience of the financial system in the rapidly evolving landscape of crypto assets.
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| Information | Details |
|---|---|
| Geography | Global |
| Countries | |
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| Relevance Score | 1 |
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| Companies | Basel Committee on Banking Supervision, Bank for International Settlements (BIS) |
| Currencies | None |
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