Basel Committee proposes requirements for banks investing in Bitcoin

Credit institutions should hold enough reserves to cover potential losses from investments in Bitcoin and other cryptocurrencies. The Basel Committee on Banking Supervision (BCBS) put forward this proposal in a published consultative document.

The #BaselCommittee proposals differentiate between cryptoassets based on the market, liquidity, credit and operational risks they present for banks #cryptoassets #digitalcurrencies #stablecoins #bankingregulation https://t.co/KDpV0y0atm pic.twitter.com/fzf4QhtWDu

— Bank for International Settlements (@BIS_org) June 10, 2021

According to the press release, such risks are currently limited for banks, but in the future they could threaten global financial stability.

The regulator argues that banks should assign risk-weighted assets to the various assets on their balance sheets and sum them to define overall capital adequacy requirements. BCBS proposed dividing cryptoassets into two groups:

• Tokenised traditional assets and stablecoins that fall under existing regulatory rules applicable to bonds, loans and exchange-traded commodities. The risk weight in such a case would range from 0% to 1250%;
• Bitcoin and other cryptocurrencies to which a new “conservative prudential regime” will apply. For these, the risk weight will always be 1250%. This means that for dealing with such assets a bank must hold capital equal to or exceeding the size of the corresponding position.

“This capital would be sufficient to fully cover cryptoassets without posing a threat to depositors or other senior creditors of the bank,” the document states.

The regulator stressed that, given the rapid evolution of the digital asset market ahead of final rules, further public consultations are likely.

On June 8, BCBS said it intended to seek stakeholders’ views on approaches to developing the structure of prudential oversight in relation to the risks banks face from cryptoassets.

BCBS operates under the Bank for International Settlements (BIS) and is tasked with creating uniform regulatory standards. 

In March, BIS’s Innovation Hub head Benoît Cœuré said that Bitcoin had failed as a means of payment due to its high volatility.

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