The Basel Committee on Banking Supervision has proposed new rules for cryptocurrencies held by banks to ward off potential threats to the financial stability of the volatile market. “The growth of crypto assets and related services has the potential to raise financial stability concerns and increase risks faced by banks,” the BCBS said.
Bitcoin Should Carry the Toughest Capital Requirements for Banks
The Basel Committee on Banking Supervision, made up of regulators around the globe published a new report that said Bitcoin should carry the toughest capital requirements for banks due to its highest levels of volatility. At the same time, lower-risk stablecoins should be assessed like stocks.
Under the proposal, banks should apply a 1,250% risk weight for their exposure to Bitcoin and other cryptocurrencies to cover any losses in full. This means that a bank might need to hold a dollar in capital for each dollar worth of Bitcoin, based on an 8% minimum capital requirement, adding:
“The capital will be sufficient to absorb a full write-off of the crypto-asset exposures without exposing depositors and other senior creditors of the banks to a loss.”
The proposal is open to public comment before it will take into effect. Banks have until Sept. 10 to respond to the committee’s proposals.
Basel Committee Proposes Sub-Dividing Cryptoassets Into Two Groups
The Basel Committee is proposing sub-dividing crypto assets into two groups.
The first would deal with assets with values tied to real-world assets such as “tokenized traditional assets” which includes stablecoins such as Facebook’s Diem.
On the other hand, the second group includes Bitcoin and other cryptocurrencies which do not fulfill the classification conditions “since these pose additional and higher risks, they would be subject to a new conservative prudential treatment.”
The BCBS has established a series of international standards for bank regulation and has 45 member institutions from 28 jurisdictions, headquartered in the Swiss city of Basel at the Bank for International Settlements.
The committee was set up by central bank governors in 1974 to improve the quality of banking supervision worldwide.