Will banks be blocked from investing in cryptocurrency? The Basel Committee imposes 1,250% weight

Banks must set aside enough capital to cover losses on any bitcoin holdings in full, global banking regulators proposed on Thursday, in a “conservative” step that could prevent widescale use of the cryptocurrency by major lenders.

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The Swiss-based Basel committee said in a public consultation paper that while bank exposures to cryptoassets are limited, their continued growth could increase risks to global financial stability if capital requirements are not introduced.

Basel’s rules require banks to assign “risk weightings” to different types of assets on their books, with these totted up to determine overall capital requirements.

For cryptoassets, Basel is proposing two broad groups.

The first includes certain tokenised traditional assets and stablecoins which would come under existing rules and treated in the same way as bonds, loans, deposits, equities or commodities.

This means the weighting could range between 0% for a tokenised sovereign bond to 1,250% or full value of asset covered by capital.

The value of stablecoins and other group 1 crypto-assets are tied to a traditional asset, such as the dollar in the case of Facebook’s proposed Diem stablecoin.

Nevertheless, given cryptoassets are based on new and rapidly evolving technology like blockchain, this poses a potentially increased likelihood of operational risks which need an “add-on” capital charge for all types, Basel said.

‘UNIQUE RISKS’

The second group includes cryptocurrencies like bitcoin that would be subject to a new “conservative prudential treatment” with a risk-weighting of 1,250% because of their “unique risks”.

Bitcoin and other cryptocurrencies are not linked to any underlying asset.

Under Basel rules, a 1,250% risk weight translates into banks having to hold capital at least equal in value to their exposures to bitcoin or other group 2 cryptoassets.

“The capital will be sufficient to absorb a full write-off of the cryptoasset exposures without exposing depositors and other senior creditors of the banks to a loss,” it added.

Few other assets that have such conservative treatment under Basel’s existing rules, and include investments in funds or securitisations where banks do not have sufficient information about their underlying exposures.

Basel said that given the rapidly evolving nature of cryptoassets, a further public consultation on capital requirements is likely before final rules are published.

Central bank digital currencies are not included in its proposals.

안효성(2021.06.10) 은행 암호화폐 투자 길 막힐까..바젤위, 1250% 가중치 부과
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