Basel Committee Continues Restrictive Requirements on Banks' Crypto Holdings

The Basel Committee on Banking Supervision met on Friday to discuss topics such as cryptocurrencies. The committee said it would soon publish a second consultation paper, aiming to finalize guidance on banks’ prudent handling of cryptocurrency exposure by the end of the year.

In a press release on Tuesday, the council issued the following statement, likely referring to the recent collapse of the Terra ecosystem:

“Recent developments further underscore the importance of establishing a global minimum prudential framework to de-risk cryptoassets.”

The committee began consultations on the banking industry's exposure to cryptocurrencies in 2021, and published a paper on its findings at the time. The committee divided crypto assets into two groups, tokenized traditional assets and stablecoins in one group, and everything else in a second group. The second group has a risk weight of 1250%, which includes all cryptocurrencies and their derivatives. This means that for every $1 worth of cryptocurrency held by a bank, it should hold $1 in fiat currency.

The committee's "conservative and prudent approach" drew opposition from banking groups. In a letter to the committee, the International Swaps and Derivatives Association (ISDA), the Futures Industry Association (FIA), the Institute of International Finance, the American Chamber of Digital Commerce and five other groups said the proposed requirements amounted to "an Substantial impediments to participating in the cryptoasset market”.

The Basel Committee on Banking Supervision is composed of central banks and regulators from 28 countries and jurisdictions, as well as 3 observer countries and 5 institutions. It is backed by the Bank for International Settlements, but its decisions have no legal force.

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