The Basel Committee on Banking Supervision of the the Bank for International Settlements (BIS) has unveiled a consultative document on December 14, 2023. This suggested major adjustments to its standard on banks’ exposure to crypto assets.
Background and Maximum Maturity Limits Introduction
This proposal comes after an extensive review conducted throughout 2022 leading to amendments to the original prudential standards for banks’ exposure to stablecoins, initially published in December 2022.
The core of the proposed changes revolves around reshaping the composition of reserve assets for stablecoins. This is specifically focusing on crypto assets classified under Group 1b in the prudential standards.
A significant proposal put forth by the committee aims to mitigate redemption risks during periods of extreme stress. The suggestion involves imposing a maximum maturity limit for individual reserve assets, particularly targeting longer-term exposures.
Should longer-term assets be permitted as reserve assets, the committee stresses the importance of overcollateralization. This measure further ensures that stablecoin holders’ claims are robustly backed. Additionally, it will provide a buffer against potential decreases in asset values during challenging times and volatile markets.
Criteria for Credit Quality
The document also underscores the importance of credit quality criteria. It proposes a list of reserve assets with high credit quality deemed suitable for stablecoin issuers. These include central bank reserves, marketable securities guaranteed by sovereigns and central banks with high credit quality, and deposits at high credit quality banks.
The committee is open to feedback on these proposed amendments until March 28, 2024. Regardless of the feedback received, the prudential standards for stablecoin exposures are slated for implementation on January 1, 2025.
Regulatory Landscape and Previous Consultation
The Basel Committee, comprised of central banks and financial authorities from 28 jurisdictions, serves as an important forum for regulatory cooperation on banking supervisory matters. A prior consultation paper in October 2023 laid the groundwork for this proposal, emphasizing the need for quantitative data on exposures to crypto assets and corresponding capital and liquidity requirements.