BIS Declares Bitcoin an Asset Class Needing Stricter Capital Requirements by Banks But Lower to Hold Stablecoins
The Basel Committee on Banking Supervision, which sets international banking standards, said on Thursday that the banking industry faces increased risks from crypto-assets and needs tough capital requirements to hold Bitcoin and other cryptocurrencies.
In its report, BIS talked about the consultation on the prudential treatment of crypto-asset exposures, where it noted crypto assets’ potential for money laundering, reputational challenges, and volatility that could lead to defaults. the Basel Committee, which includes the Federal Reserve and European Central Bank aid,
“The growth of crypto-assets and related services has the potential to raise financial stability concerns and increase risks faced by banks.”
“The capital will be sufficient to absorb a full write-off of the cryptoasset exposures without exposing depositors and other senior creditors of the banks to a loss.”
The committee has set lower capital requirements for stablecoins and tokenized traditional assets, which are put in one group and eligible for treatment under the existing Basel Framework.
As for Bitcoin and certain cryptocurrencies, the panel has proposed a 1,250% risk weight to be applied to banks’ exposure to them.
This second group of crypto assets to which Bitcoin belongs, do not fulfill the classification condition because they pose additional and higher risks; as such, “they would be subject to a new conservative prudential treatment,” states the report.
Before the proposal can take effect, it is open to public comment. The committee further said that these are initial policies that are likely to change several times in line with the “rapidly evolving nature of this asset class.” Such rules to be applied worldwide typically take years.