Bank regulators plan ‘conservative’ capital rule for bitcoin

LONDON (Reuters) – Banks should put aside sufficient capital to cowl losses on any bitcoin holdings in full, world banking regulators proposed on Thursday, in a “conservative” step that might stop widescale use of the cryptocurrency by main lenders.

FILE PHOTO: A banner that reads “We settle for Bitcoin, free, quick and with out contagion” is seen at a seaside cafe on Punta Roca Beach in La Libertad, El Salvador April 25, 2021. REUTERS/Jose Cabezas/File Photo

The Basel Committee on Banking Supervision, made up of regulators from the world’s main monetary centres, proposed a twin strategy to capital necessities for cryptoassets held by banks in its first bespoke rule for the nascent sector.

El Salvador has develop into the world’s first nation to undertake bitcoin as authorized tender regardless that central banks globally have repeatedly warned that buyers within the cryptocurrency should be able to lose all their cash.

Major economies together with China and the United States have signalled in latest weeks a harder strategy, whereas creating plans to develop their very own central financial institution digital currencies.

The Swiss-based Basel committee mentioned in a public session paper that whereas financial institution exposures to cryptoassets are restricted, their continued development might improve dangers to world monetary stability if capital necessities aren’t launched.

Bitcoin and different cryptocurrencies are at present price round $1.6 trillion globally, which continues to be tiny in contrast with financial institution holdings of loans, derivatives and different main property.

Basel’s guidelines require banks to assign “danger weightings” to several types of property on their books, with these totted as much as decide general capital necessities.

For cryptoassets, Basel is proposing two broad teams.

The first consists of sure tokenised conventional property and stablecoins which might come below present guidelines and handled in the identical means as bonds, loans, deposits, equities or commodities.

This means the weighting might vary between 0% for a tokenised sovereign bond to 1,250% or full worth of asset lined by capital.

The worth of stablecoins and different group 1 crypto-assets are tied to a conventional asset, such because the greenback within the case of Facebook’s proposed Diem stablecoin.

Nevertheless, given cryptoassets are primarily based on new and quickly evolving know-how like blockchain, this poses a doubtlessly elevated chance of operational dangers which want an “add-on” capital cost for every kind, Basel mentioned.


The second group consists of cryptocurrencies like bitcoin that may be topic to a brand new “conservative prudential therapy” with a risk-weighting of 1,250% due to their “distinctive dangers”.

Bitcoin and different cryptocurrencies aren’t linked to any underlying asset.

Under Basel guidelines, a 1,250% danger weight interprets into banks having to carry capital at the very least equal in worth to their exposures to bitcoin or different group 2 cryptoassets.

“The capital can be ample to soak up a full write-off of the cryptoasset exposures with out exposing depositors and different senior collectors of the banks to a loss,” it added.

Few different property which have such conservative therapy below Basel’s present guidelines, and embrace investments in funds or securitisations the place banks do not need ample details about their underlying exposures.

The worth of bitcoin has swung wildly, hitting a document excessive of round $64,895 in mid-April, earlier than slumping to round $36,834 on Thursday.

Banks’ urge for food for cryptocurrencies varies, with HSBC saying it has no plans for a cryptocurrency buying and selling desk as a result of the digital cash are too risky. Goldman Sachs restarted its crypto buying and selling desk in March.

Basel mentioned that given the quickly evolving nature of cryptoassets, an additional public session on capital necessities is probably going earlier than closing guidelines are printed.

Central financial institution digital currencies aren’t included in its proposals.

Basel Crypto Graphic

Reporting by Huw Jones; Editing by Rachel Armstrong and Alexander Smith

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