Regulators in the EU, US and elsewhere are moving toward combinations of liquidity and capital thresholds for stablecoin issuers, but the calibration varies widely. MiCAR requires at least 30% of reserves held as bank deposits and imposes explicit capital requirements. The OCC’s proposed rules implementing the GENIUS Act layer a 10% true liquid floor and a 30% five business day accessibility requirement. A new BIS working paper provides the first rigorous analytical framework for understanding how these thresholds actually interact and what they achieve.
The paper models a fiat backed stablecoin issuer that must decide how much capital to raise and how to split its reserves between cash (safe but earns nothing) and bonds (earns interest but costly to sell at short notice). The issuer faces redemption shocks that show meaningful momentum. A bad week tends to be followed by another bad week. That persistence is estimated from weekly flow data for five major USD stablecoins from 2020 to 2025, and it is the engine that makes the model’s dynamics realistic.
First, liquidity and capital thresholds push issuers to behave differently. A liquidity rule makes issuers hold more cash but has no effect on capital. A capital rule, by contrast, makes issuers raise more capital and hold more cash. The logic is the stablecoin issuer is motivated to hold extra cash to reduce the likelihood of a fire sale of bonds which would erode capital. So a capital requirement ends up pulling on both levers, whereas a liquidity requirement only pulls on one. This asymmetry matters for how regulators should think about the interaction between the two tools, because liquidity tends to get more attention.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.
