Basel Committee Pushes For Restrictive Requirements On Banks’ Crypto Holdings

The Committee of Central Banks and Regulators has proposed a “conservative regulatory treatment” for crypto assets, which banking groups say is prohibitively expensive.

Basel Committee Pushes For Restrictive Requirements On Banks' Crypto Holdings | Coinscreed

The Basel Committee on Banking Supervision met on Friday and discussed cryptocurrencies, among other things. The committee said it would be publishing its second advisory document shortly, with the intention of finalizing guidance on the regulatory treatment of banks’ exposure to cryptocurrencies by the end of the year.

In a Tuesday press release, the committee issued the following statement, likely referring to the recent collapse of Terra’s ecosystem:

“Recent developments have further highlighted the importance of having a global minimum prudential framework to mitigate risks from cryptoassets.”

The committee launched consultations in 2021 on the risk to the banking industry with regard to cryptocurrencies and published a paper on its findings at the time.

The committee divided crypto assets into two groups, with traditional token assets and stablecoins forming one group and all others forming the second group.

The second group, which included all cryptocurrencies and their derivatives, was assigned a risk weight of 1,250%. This meant that a bank had to hold $1 worth of fiat currency for every $1 worth of cryptocurrency value it owned.

The Committee’s “conservative regulatory treatment” has drawn objections from banking groups. The International Swaps and Derivatives Association (ISDA), the Futures Industry Association (FIA), the Institute of International Finance, the Chamber of Digital Commerce and five other organizations said in a letter to the committee that the proposed requirements “pose significant barriers to participation .” Regulated Banking in the Crypto Asset Markets”.

The Basel Committee on Banking Supervision is composed of central banks and supervisors from 28 countries and jurisdictions, as well as three observer countries and five agencies. It is supported by the Bank for International Settlements, but its decisions do not have the force of law.