If the committee decides to permit longer-term assets as backing for stablecoins, they assert that these assets must exceed the stablecoin holders’ claims to mitigate risk.
On December 14, the Basel Committee on Banking Supervision (BCBS) released a new document outlining suggested changes to their standards for banks’ exposure to crypto assets.
The revised BCBS document builds upon the standards initially established in December 2022, undergoing review throughout 2023 to enhance their robustness.
The proposed changes primarily focus on the composition of reserve assets backing stablecoins, especially those categorized as Group 1b, with risk weights dependent on underlying exposures.
According to the BCBS, the proposed changes aim to mitigate risks faced by stablecoin issuers during periods of extreme stress, preventing potential large withdrawals and distressed asset sales.
The regulating body recommends limiting the maximum maturity of assets in the stablecoin reserve to restrict the issuer’s exposure to asset-holding risk.
If longer-term assets are included in the stablecoin reserve, the BCBS asserts that there should be an excess amount to fully cover stablecoin holders’ claims.
In the event of a market downturn, BCBS proposes the stablecoin reserve should hold additional assets to cover potential losses in the value of existing assets, ensuring the stablecoin remains redeemable at its pegged value.
The document underscores the importance of credit quality criteria and suggests a range of reserve assets suitable for stablecoin issuers, including central bank reserves, marketable securities guaranteed by high-credit-quality sovereigns and central banks, and deposits at banks with a high credit rating.
The Committee has opened a comment period for the proposed amendments, concluding on March 28, 2024. If adopted, the amendments will take effect on January 1, 2025.
The Basel Committee on Banking Supervision, a cooperative group of central banks and financial authorities from 28 jurisdictions, collaborates to set global standards for the banking sector.
However, in October 2023, the BCBS issued an earlier version of proposed amendments to the standards for stablecoin exposures.
The prior consultation paper proposed that banks should report quantitative data on their exposure to crypto assets and maintain appropriate levels of capital and liquidity relative to those exposures.
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