The Basel Committee on Banking Supervision, an arm of the Bank for International Settlements (BIS), has released a consultation paper on December 14, outlining proposed adjustments aimed at addressing banks’ exposure to crypto assets.
This paper follows a review conducted throughout 2023, intending to update the committee’s initial prudential standards established for bank stablecoin exposures, initially published in December 2022.
The proposed changes mainly focus on modifying the stablecoin reserve assets, particularly cryptoassets categorized as Group 1b in the Prudential Standards. These assets would be subject to capital requirements based on the risk weight of the underlying exposure. The Committee suggests measures to manage redemption risks, particularly during extreme stress periods, where stablecoin issuers might confront significant divestment claims and sell-offs. To address this, the regulator proposes setting maximum maturity limits on individual reserve assets to curtail long-term exposure.
In cases where long-term assets are considered for reserve status, the Committee suggests that these assets must be overcollateralized to offset potential declines in value. This overcollateralization aims to ensure that stablecoins remain redeemable at their pegged value, even during turbulent market conditions.
Additionally, the paper emphasizes credit quality standards and proposes a list of high-quality reserve assets suitable for stablecoin issuers, including central bank reserves, sovereign-state-guaranteed securities, deposits from high-quality banks, and other assets with high credit quality.
The Basel Committee welcomes comments on these proposed revisions until March 28, 2024. Irrespective of any revisions made, the implementation date for the prudential standards addressing stablecoin exposures remains January 1, 2025. Comprising central banks and financial authorities from 28 jurisdictions, the Basel Committee serves as a platform for regulatory collaboration on banking regulatory matters. Previously, the Committee published a consultation paper in October 2023 on prudential standards for managing stablecoin risk exposures, aiming to collect quantitative data from banks regarding their crypto-asset risk exposures and the necessary capital and liquidity requirements.
