The European regulator requires to limit the reserves of fiat-backed stablecoins

Article Reading Time:
1 min.

Basel Committee on Bankingsupervision (BIS) After the stablecoin collapse, the UST stated that for the sake of financial stability, banks should have a limit on holdings of fiat crypto assets.

For the riskiest class of crypto assets,which includes stablecoins that are not backed by conventional reserves or asset-linked stablecoins, will be capped at 1% of Tier 1 capital, the document said. For large banks like JP Morgan Chase, 1% of Tier 1 capital can amount to billions of dollars.

BIS's original plans meant thatthe bank can hold risky cryptocurrencies, conditionally, for $100 - provided the equity capital is $100. Which essentially eliminated any incentive for the bank to participate in crypto investments.

The new BIS proposal implies thatThe 1% cap will apply to unbacked cryptocurrencies like Bitcoin and to assets like algorithmic stablecoins that are backed by other cryptocurrencies. For example, if a bank holds 0.6% of its capital in algorithmic stablecoins and 0.5% in bitcoins, it violates the European regulator's limit.

The Committee expects comments and suggestions from the banking community by the end of September and promises that until this date it will closely monitor the rapidly changing and unstable cryptocurrency market.

Following the collapse of USterra, the Basel Committee on Banking Supervision said it would launch a platform to track stablecoins and DeFi projects.