Terra collapse: Regulators eye stablecoin safeguards and capital rules for banks’ crypto holdings

euronews.com:

Global regulators plan to complete work by the end of the year on how much capital banks should hold to cover crypto assets on their books.

Financial watchdogs are trying to catch up with fast-moving developments in crypto markets, whose extreme volatility in recent weeks has caused huge losses for some users.

Last June, the Basel Committee on Banking Supervision proposed that banks set aside enough capital to cover losses on any Bitcoin holdings in full.

Certain tokenised traditional assets and stablecoins could, however, come under existing capital rules and be treated like bonds, loans, deposits or commodities.

Earlier this month TerraUSD, a stablecoin tied to the US dollar, collapsed. The meltdown cost investors tens of billions of dollars as they pulled out of the market in a panic that some have compared to a bank run.

"Recent developments have further highlighted the importance of having a global minimum prudential framework to mitigate risks from crypto assets," the Basel Committee said in a statement on Tuesday.

"Building on the feedback received by external stakeholders, the Committee plans to publish another consultation paper over the coming month, with a view to finalising the prudential treatment around the end of this year".

Countries which are members of Basel are committed to applying its agreed principles in their own national rules.

Stablecoins, which play a pivotal role in crypto markets, are digital tokens pegged to the value of traditional assets, such as the US dollar, and are seen as having a bigger role in payments.

The collapse of TerraUSD, a popular stablecoin which was the 10th largest cryptocurrency, caused alarm among central banks and governments. 

A growing number of them are now signalling their