A prudential framework is a set of regulations and guidelines designed to ensure the safety and soundness of financial institutions and the stability of the financial system. These frameworks typically include rules on capital adequacy, liquidity requirements, risk management, and corporate governance. Their purpose is to prevent excessive risk-taking, protect depositors and investors, and maintain market confidence. They serve as a critical component of financial oversight.
Context
As digital assets gain mainstream acceptance, regulators are developing and adapting prudential frameworks to address the unique risks posed by cryptocurrencies, stablecoins, and decentralized finance. This involves establishing capital requirements for banks holding crypto assets and setting standards for stablecoin reserves to prevent systemic instability. News reports frequently discuss proposals and updates to these frameworks, highlighting the ongoing effort to integrate digital assets safely into the regulated financial system.
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