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Basel Committee now classifies Bitcoin as a risk for banks

The global banking regulator proposed to divide digital assets into two categories in a new report published on Thursday
Basel

The global banking regulator in Basel proposed to divide digital assets into two categories in a new report published on Thursday.

Basel: As authorities are planning to manage the cryptocurrency sector, the world’s most important banking regulator suggested that these types of assets should face the strictest bank capital rules. Global regulators think that there should be more requirements for holding volatile valuables such as bitcoin.

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“While banks’ exposures to cryptoassets are currently limited, the continued growth and innovation in cryptoassets and related services, coupled with the heightened interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment.”

Basel Committee consults on prudential treatment of cryptoasset exposures

To help in this matter, the Basel Committee proposed to divide cryptocurrencies into two groups. The first will include comprising tokenized assets and stablecoins, which can be qualified for exploration under existing rules. The second group includes bitcoin and similar assets that don’t fulfill the same conditions.

“Group 1 cryptoassets – these fulfil a set of classification conditions and as such are eligible for treatment under the existing Basel Framework (with some modifications and additional guidance). These include certain tokenised traditional assets and stablecoins.
Group 2 cryptoassets – are those, such as bitcoin, that do not fulfil the classification conditions. Since these pose additional and higher risks, they would be subject to a new conservative prudential treatment.”

Basel Committee consults on prudential treatment of cryptoasset exposures

With these new regulations, banks would have to hold capital equal to the exposure they are facing and should also be prepared if the value went to zero. These standards would only apply to NFTs and tokens created for DeFi. Central bank digital currencies were not included in Basel’s suggestions.

“A $100 exposure would give rise to risk-weighted assets of $1,250, which when multiplied by the minimum capital requirement of 8% results in a minimum capital requirement of $100 (ie the same value of the original exposure, as 12.5 is reciprocal of 0.08).”

Basel Committee consults on prudential treatment of cryptoasset exposures
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