The Basel Committee on Banking Supervision (BCBS), a global committee composed of bank supervisors and central banks, has put forward new requirements for banks that want to hold cryptocurrencies such as Bitcoin.Bitcoin).
In the consultation document Publish On Thursday, the committee made preliminary recommendations on banks’ prudent handling of cryptocurrency risks.
The document is based on the content of the committee’s 2019 discussion paper and the responses received from various stakeholders and international industry players.
The perceived volatility of cryptocurrencies and the possibility of illegal use have led BCBS to recommend a risk weight of 1,250% to Bitcoin. This essentially means that the bank must hold one dollar of capital for every dollar of bitcoin exposure.
According to the document, this will ensure that there is sufficient capital to absorb the full write-off of crypto-asset exposure, “without causing losses to depositors and other senior creditors of the bank”.
BCBS proposes to divide encrypted assets into two major categories: assets that are eligible for some modifications under the Basel framework; and assets such as Bitcoin (Bitcoin), subject to the new conservative and prudent handling.
The first category will include tokenized traditional assets and “encrypted assets with effective stability mechanisms”, that is, stable currencies.
The second group includes Bitcoin and other assets that “fail to meet any classification criteria”, such as application stability mechanisms.
BCBS pointed out that a high risk weight of 1,250% will result in a “conservative result” that directly exposes crypto assets. However, with regard to crypto derivatives, “the’value’ in the formula should be carefully defined to ensure that the results are equally conservative,” the committee pointed out.