Basel Committee suggests introducing maturity limits for stablecoin reserve assets

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In a consultative document published on Dec. 14, the Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) proposed several measures on targeted adjustment to its standard on banks’ exposure to crypto assets. 

The document is the result of the review work conducted during 2023, which helped the committee formulate amendments to its original prudential standards for banks’ exposure to stablecoins published in December 2022.

Proposed changes relate primarily to the composition of the reserve assets of stablecoins, specifically for crypto assets classified under Group 1b in the prudential standards, “subject to capital requirements based on the risk weights of underlying exposures.”

The committee proposes to target the redemption risks in periods of extreme stress when the stablecoin issuers might face mass claims for withdrawal and a resulting fire sale. The regulating body suggests restricting stablecoin exposures to longer-term maturities by introducing a maximum maturity limit for individual reserve assets.

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Should longer-term assets be allowed as reserve assets, the committee believes these must overcollateralize the claims of stablecoin holders. The amount of extra collateral should be enough to offset potential decreases in asset values so the stablecoin would remain redeemable at its pegged value, even during challenging times and in volatile markets.

The document also highlights the criteria of credit quality, suggesting a list of reserve assets with high credit quality suitable for stablecoins issuers, including central bank reserves, marketable securities guaranteed by sovereigns and central banks with high credit quality, and deposits at high credit quality banks.

The committee will collect comments on the proposed amendments until March 28, 2024. Amended or not, the prudential standards for stablecoin exposures have an implementation date of Jan. 1, 2025.

The Basel Committee comprises central banks and financial authorities from 28 jurisdictions and is a forum for regulatory cooperation on banking supervisory matters. It issued a previous consultation paper on the prudential standards for stablecoins exposure in October 2023. That document proposed requiring banks to provide quantitative data on exposures to crypto assets and the corresponding capital and liquidity requirements.

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