Basel Banking Committee Proposes Stricter Guidelines to Classify Stablecoin as Less Risky Than Unbacked Cryptocurrencies
The Basel Committee for Banking Supervision (BCBS) wants to tighten rules to classify stablecoins as less risky assets than Bitcoin (BTC) and other unbacked cryptocurrencies.
In a recent consultative paper, the international standard setter proposed 11 rules to guide banks’ exposure to crypto assets highlighting areas such as credit maturity, liquidity, and asset reserve.
According to the report, the committee seeks changes to the requirements on how banks can include stablecoins they are exposed to and promote technical amendments to the standard to understand crypto assets.
All stakeholders are expected to comment on the proposed amendments before March 28, 2024, through the website and all inputs will be published unless marked as confidential.
The composition of reserve assets has been pushed by several regulators over the years to protect investors by ensuring that all assets are fully backed. New proposals include redemption risk tests and additional safeguards in periods of extreme stress.
A major change is stressing the maturity of reserve assets because short-term assets carry less risk than longer-term counterparts in the event of crises requiring a mass withdrawal of assets by users. To maintain shorter maturity rates, banks will need to adopt a maturity limit for individual reserve assets and an average limit for a pool of assets.
“ The reserves assets that are used to cover redemptions can pose various risks that call into question the ability of the stablecoin issuer to meet holders’ expectations of redemption on demand.”
In cases of longer-term assets or when short-term assets are limited, reserve assets must be over-collateralized to cover a decline and avoid losses.
Secondly, reserve assets would need to
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