Basel banking panel suggests placing crypto assets in highest risk category

Banks will face the most stringent capital requirements for holdings of Bitcoin and other crypto-assets as part of global regulators’ plans to counter threats to the financial stability of the volatile market.

The Basel Committee on Banking Supervision said on Thursday that the banking industry faces heightened risks from crypto-assets due to the potential for money laundering, reputation issues and sharp price swings that could lead to losses. payment defaults.

The panel proposed that a 1,250% risk weight be applied to a bank’s exposure to Bitcoin and certain other cryptocurrencies. In practice, this means that a bank may need to hold a dollar of capital for every dollar of Bitcoin, based on a minimum capital requirement of 8%. Other assets with this highest possible risk weight include securitized products for which banks do not have sufficient information on the underlying exposures.

“The growth of crypto assets and related services has the potential to raise financial stability issues and increase the risks facing banks,” said the Basel Committee, which includes the Federal Reserve and the European Central Bank , in the report. “The capital will be sufficient to absorb a full write-off of crypto-asset exposures without exposing depositors and other senior creditors of banks to a loss.”

Bitcoin gained around 5% to hit $ 38,226 at 11:43 am in London.

The proposal is open to public comment before it takes effect, and the committee said those initial policies are likely to change several times as the market evolves. No timeline was specified in the report, but the process of approving and implementing the Basel rules around the world can typically take years.

Some assets, such as tokens whose value is tied to real-world assets and stablecoins, are set for lower capital requirements.

The popularity of crypto has exploded this year, with day traders and professionals looking for profits in Bitcoin, as well as in the more obscure niches of the market. The enthusiasm for institutional adoption, the idea that this is a store of value akin to ‘digital gold’ and endorsements from big-name investors like Paul Tudor Jones and Stan Druckenmiller have all fueled the bull market.

Bitcoin went from around $ 10,000 last September to $ 63,000 in mid-April. However, over the past month, prices collapsed, falling back to $ 37,000, following stricter regulatory scrutiny in China and Elon Musk’s criticism of Bitcoin’s high energy cost.

While many banks have been cautious before embarking on crypto trading, rising consumer interest is pushing financial firms, including Interactive Brokers Group Inc. and Robinhood Markets Inc., to expand into the market. . Standard Chartered Plc announced this month that it will form a joint venture to buy and sell Bitcoin.

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