The purpose of the new liquidity guidelines is to ensure that stablecoins can be redeemed quickly even during market turbulence to avoid the risk of bank runs and contagion in crisis situations.
Under the proposed liquidity guidelines, stablecoin issuers must offer any stablecoin backed by a currency that is fully redeemable by investors at face value. The EBA’s official proposal states that the Stablecoin Liquidity Guidelines will serve as a liquidity stress test for stablecoin issuers.
The EBA believes that stress testing will highlight any shortcomings and lack of liquidity of stablecoins, which can help the EBA only approve fully supported stablecoins with sufficient liquidity buffers.
“Liquidity stress testing will help token issuers better manage their asset reserves as well as liquidity risks. Based on the results of the liquidity stress testing, the EBA or the relevant authorities/regulators (if applicable) may decide to strengthen the issuer’s liquidity Sexual requirements,” the official proposal reads.
Once approved, the proposal will be in effect from June until early next year. After the implementation of the guidance, the authorities will have the power to strengthen the liquidity requirements of relevant issuers to deal with these risks based on the results of liquidity stress tests.
related: Binance plans to delist stablecoins in Europe citing MiCA compliance reasons
The proposed liquidity rules target issuers of stablecoins, which can be non-bank institutions, meet the same safeguards and avoid unfair capital or liquidity advantages relative to banks. The proposal is currently in the consultation stage and the public can provide comments. The public consultation phase will last for three months until a public hearing on January 30, 2024.
The European Banking Authority (EBA), the banking regulator of the European Union (EU), has proposed a new set of guidelines For stablecoin issuers, minimum capital and liquidity requirements will be set.
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