Banking regulators around the world want to adopt stricter standards to reduce stablecoin risk

The Basel Committee on Banking Supervision (BCBS) wants to make stablecoins less risky than unbacked cryptocurrencies.

The Global Committee on Banking Supervision wants to adopt stricter standards to make stablecoins less risky than cryptocurrencies that are not supported, such as BTC (BTC).

To this end, the Basel Committee on Banking Supervision (BCBS) launched a public consultation this Thursday (14th) with the aim of amending the rules on banks’ exposure to cryptoassets as of March 28, 2024, according to a statement by the Bank for International Settlements (BIS).

According to reports, BCBS has proposed 11 stablecoin standards. In order to qualify for consideration in Group 1b, a stablecoin’s reserve assets must meet a range of criteria, including short-term maturities, high credit quality, and low volatility.

“Issuers of stablecoins pegged to one or more currencies typically maintain their value relative to the peg by offering on-demand redemptions,” the document said. Reserve assets used for redemption can pose a variety of risks that call into question the ability of stablecoin issuers to meet holders’ on-demand redemption expectations. ”

BCBS has so far taken a tough stance on cryptocurrencies, requiring banks to issue capital to match their exposure to BTC and the like. In addition, banking institutions are also not allowed to allocate more than 2% of their major capital to cryptocurrencies, as they are considered high-risk assets. However, the BCBS statement said that no changes to these rules are planned at this time.

However, cryptocurrencies with “effective stability mechanisms” are eligible for “Group 1b preferential regulatory treatment”. This means, for example, that stablecoins need to comply with “capital requirements based on the underlying risk weights set out in the existing Basel Framework” rather than the more stringent requirements faced by cryptocurrencies such as BTC.

To qualify for Group 1b, stablecoins must be “redeemable at any time,” which ensures that “only stablecoins issued by regulated and regulated entities with strong redemption rights and governance are eligible for inclusion,” the BCBS said.

For stablecoins that do not qualify for the Basel Committee, they will be classified as Group 2 and subject to “new, highly conservative capital treatment”.

Overall, BCBS’s new standard aims to reduce the risk of stablecoins and ensure the safety of reserve assets by specifying requirements such as short-term maturity, high credit quality, and low volatility to preserve the value of stablecoins.