By Michael Scott
The US largest crypto exchange by trading volume joined stablecoin USD Coin (USDC) issuer Circle to contest the proposals by the Basel Banking Supervision Committee to introduce stricter criteria for banks. The Committee proposes that banks seek stablecoin exposure to meet the rigorous criteria for preferential regulatory treatment.
In December, the Banking Supervision Committee released a consultation publication urging banks to exercise due diligence to bolster awareness of stabilization mechanisms for the stablecoins they seek exposure to.
Coinbase Questions Strict Stablecoin Requirements for Banks
The consultative document captured suggestions to ascertain the eligibility of stablecoins within the Group 1b category that outlines the preferential regulatory treatment. The consultative document mandates banks to meet several standards, including adequate liquidity and low
volatility.
The Banking Supervision committee invited commentary whose acceptance expired on Thursday, March 28. The Brian Amstrong-led Coinbase expressed its resentment towards the approach proposed by the Committee in its commentary letter on Thursday.
Coinbase illustrated that most of the requirements miss out on the risks such assets pose to the bank. Instead, they manifest other policy objectives that the proposals hardly incorporate in the capital requirements.
Coinbase argues in the letter that the choices expressed by the Committee harbor the desire to servery incapacitate stablecoins’ holding and usage by the banks.
Criticism for Permissionless Blockchain Treatment
The crypto firm behind the second-largest stablecoin, USDC, by market capitalization, questioned the intentions of the Banking Supervision behind the permissionless blockchain treatment. The Committee concluded that permissionless blockchains exhibit unique risks, excluding them from Group 1 classification.
On Wednesday, March 27, Circle’s letter questioned why the Basel Banking Supervision committee overlooked the firm ground in encouraging financial institutions to tap open-source technologies, cryptography, blockchains, and mobile-oriented wallets.
The letter acknowledges the technologies as catalysts for banks to realize digital transformation and reinforce their cybersecurity efforts. Circle argues that the Committee knows that a single bank failure erodes confidence in the entire segment.
Circle argues that the majority of the small to mid-sized categories are trailing the digital transformation, unlike the more prominent global banks. Small and mid-sized banks could leverage the blockchain and open-source technologies to keep up with the prevailing digital transformation realized by their larger counterparts.
Circle Urges Banking Supervision Committee to Initiate Collaborative Model
Circle urges that deploying a collaborative model is critical rather than stigmatizing blockchain-based services. Circle suggests the need for in-depth partnership between the providers of blockchain-based services and the banking institutions.
Circle urges the Basel Committee to offer oversight in its banking supervision, urging collaboration to benefit the banks. The crypto firm acknowledges the Committee’s involvement in global standard-setting with policies enforced in Japan, Canada, and the US, amongst other developed markets.
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