EU banking regulator proposes liquidity rules for stablecoin issuers
The European Banking Authority (EBA) – the EU's banking regulator – has issued new guidelines for stablecoin issuers that set minimum capital and liquidity requirements.
The new liquidity guidelines aim to ensure that stablecoins can be used quickly even in a congested market environment to avoid the risk of contagion and banking processes in times of crisis.
According to the proposed liquidity guidelines, Statcoin issuers must provide any stablecoin that is fully funded with investors. The official proposal by the EBA indicated that the Statcoin liquidity guidelines would serve as a liquidity stress test for stablecoin issuers.
The EBA believes that the stress test will highlight any weaknesses and lack of liquidity for a stablecoin, helping the authority to approve fully backed stablecoins with only an adequate liquidity buffer. The instructions read:
“Liquidity stress testing helps token issuers better manage their asset portfolio and liquidity risk in general. Based on the results of the liquidity stress test, the EBA or, where applicable, the relevant authority/supervisor, may decide to strengthen the issuer's liquidity requirements.
Once approved, the guidelines will come into effect from early 2024. After implementing the guidelines, the authorities will have the power to strengthen liquidity requirements for the issuer concerned to cover those risks based on the results of the liquidity stress test.
Related: Binance plans to list stablecoins in Europe, citing MiCA compliance
The proposed liquidity rules are aimed at potential issuers of stablecoins, such as banking institutions, requiring them to meet similar safeguards and avoid unfair capital or cash flow benefits. The proposal is currently in the consultation stage where the general public can give their opinion. The public consultation phase is open for three months until a public hearing is held on January 30, 2024.
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