Cryptocurrency News

Bitcoin is part of the highest risk category in Basel’s new bank capital scheme


The Basel Committee on Banking Supervision (BCBS), a global committee of banking supervisors and central banks, has proposed new requirements for banks that want to hold cryptocurrencies such as bitcoin.B T c)

In consultation paper published On Thursday, the committee provided preliminary proposals for judicious treatment of crypto exposures by banks.

The paper built on the contents of the committee’s 2019 discussion paper and responses received from various stakeholders and international industry figures.

The perceived volatility and potential for illegal use of crypto prompted the BCBS to recommend a 1,250% risk weight for bitcoin. This essentially means that banks must hold one dollar in capital for every dollar they risk for bitcoin.

According to the paper, this will ensure that there is sufficient capital for a complete write-off of crypto asset risk “without exposing depositors and other senior creditors of banks to loss”.

The BCBS proposed dividing crypto assets into two broad categories: those eligible for treatment under the Basel Framework, with some modifications; and assets such as bitcoin (B T c), which are subject to the new conservative prudential treatment.

Source: Bank for International Settlements

related: Global banking regulator plans to hold consultations on crypto exposure

The first category would include tokenized traditional assets as well as “crypto assets with an effective stabilization mechanism”, i.e. stablecoins.

The second group includes bitcoin and other assets that “fail to meet any of the classification conditions” such as implementing a stabilization mechanism.

BCBS noted that a higher risk weight of 1.250% would lead to “conservative consequences” for direct exposure to crypto assets. However, with respect to crypto derivatives, “care must be taken in defining what ‘value’ is in the formula to ensure that the result is equally conservative,” the committee said.