Basel Committee proposes penalizing banking exposure to cryptocurrencies

Daniel Caballero




The expansion of cryptocurrencies has not gone unnoticed by banks. Their real interest in these types of assets is still contained but there are those who are already trying to anticipate the possibility that financial institutions seek to fully enter this field. Specifically, the Basel Committee on Banking Supervision (BCBS), the body in charge of the worldwide prudential regulation of banks and, in particular, their solvency. Its objective is to provide the financial sector with a stricter framework for these types of assets.

The institution has issued a public consultation to determine the prudential framework to which the bank’s exposure to cryptocurrencies must be submitted. “While bank exposures to crypto assets are currently limited, continued growth and innovation in crypto assets and related services, along with increased interest from some banks, could increase concerns about global financial stability and risks to the banking system in the absence of a specific prudential treatment “, reads the press release.

Said consultation is launched so that entities make known their position on the possibility of imposing strict capital requirements on those who operate with cryptocurrencies. The process will be open until September, although Basel does not rule out having to issue further consultations in the future.

The institution divides its proposal for prudential treatment into two types. On the one hand, those cryptocurrencies that do meet a set of conditions to enter within the existing prudential framework -with some modifications-, such as “certain traditional tokenized assets and stablecoins”; on the other, those cryptocurrencies, “Like bitcoin”, that they do not meet the classification conditions and that they would have to be subject “to a new conservative prudential treatment”.

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In this second case, any currency of this nature will receive, in relation to the bank’s exposure framework, a risk weight of the 1.250%, the highest. In practice, this would mean that for every 100 euros that an entity has, for example, in bitcoin, it would demand a capital requirement of another 100 euros. A safeguard for operations with this type of assets given the high risk that they could entail.

The international body has also warned about possible risks that cryptocurrency operations may entail. «Certain crypto assets have a high degree of volatility and could present risks for banks as exposures increase, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); risk of money laundering and financing of terrorism; and legal and reputational risks ”, he stated.

Thus, Basel does not extend its proposal for all types of cryptocurrencies. “The digital currencies of central banks are not within the scope of the consultation,” he reported, so if the Federal Reserve or the European Central Bank (ECB) issued their own digital currency would not be covered by the results of the query. However, the banking regulation standards agreed by the institution are not legally binding, but their implementation is based on the commitment of its members to adopt them.

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