Traditional banks will be able to expose themselves to Bitcoin in a very limited way, according to the proposal presented by the Basel Committee.
The second public consultation on the prudential treatment of traditional banks' cryptocurrency exposures indicates that these entities will be able to Keep only up to 1% of their assets in Bitcoin reserves; a fairly strict limit according to several experts.
Saying Valid identity document It was published by the Basel Committee on Banking Supervision (BCBS), an international organization chaired by the Governor of the Bank of Spain, Pablo Hernández de Cos, this Thursday.
In it, the Basel Committee wants to address the risks of banks' exposure to cryptoassets.
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Basel limits banks' ability to interact with Bitcoin
The Basel Committee on Banking Supervision notes that traditional banks currently maintain a fairly limited and modest exposure to Bitcoin and cryptocurrencies.
However, despite current market conditions, Cryptocurrencies are a new emerging asset class, which is arousing increasing interest among investors and society. Therefore, Many banks are also considering the adoption of these digital assets. to meet the demands of its customers and investors.
The international organization believes that this growing interest of banks in cryptocurrencies could increase concerns for global financial stability, if such exposure is not regulated appropriately.
Therefore, in light of the potential risk, the Basel Committee wants to design new policies that allow for specific prudential treatment for crypto assets, severely limiting banks' exposure to cryptocurrencies such as Bitcoin in order to mitigate concerns and address potential threats.
Designing strict rules for cryptocurrencies
The BCBS second public consultation document follows the published in June last year, where the organization raised the possibility of grouping cryptocurrencies into two large groups to more easily address banks' exposures to crypto assets.
The Committee’s first proposed group of cryptocurrencies brings together all digital assets that “meet a set of classification conditions and, as such, are eligible for treatment under the existing Basel Framework,” the organization noted in the document.
This First group includes traditional tokenized assets and stablecoins backed.
El Second group of cryptocurrencies proposed by the Basel Committee groups unbacked crypto assets such as Bitcoin, which, according to the organization, “do not meet the classification conditions.” Therefore, it points out that banks’ exposure to this group of cryptoassets must be very limited.
The highest risk weighting for the crypto industry
According to the Basel Committee, the nature of cryptocurrencies that make up the second group poses additional risks to financial stability, which is why they should be subject to new strict and conservative prudential treatment.
Although the second public consultation presented this Thursday by the BCBS would allow banks to have limited exposure to cryptocurrencies, the organization also maintains the basic structure presented in the proposal of the first public consultation. Therefore, some experts are pointing out that the policies proposed by the Committee are “quite strict.”
Finance and economics writer and speaker Casandra Schadenfreude has said on Twitter that the feedback between the Basel Committee and crypto industry stakeholders has not been correct.
In addition to the international organization seeking to apply the highest risk weighting of 1.250% to banks that wish to interact with and hold cryptocurrencies that do not meet the classification conditions, the Committee now wants to add a limit on total exposure to crypto assets, the expert noted.
The application of the 1.250% risk weight will ensure that banks are required to hold minimum risk-based capital at least equal in value to their exposures to cryptocurrencies in the second group, the Committee's public consultation document notes.
The comment period for this second public consultation document closes on September 30th.
Stakeholders, including academics, commercial and central banks, finance ministries, supervisory authorities, market participants, payment system providers, technology companies and the general public, are welcome to submit their comments and ideas to the organization before the deadline.
The Basel Committee and its relationship with Bitcoin and cryptocurrencies
The Basel Committee, which meets at the premises of the Bank for International Settlements (BIS), has maintained a rather tough position towards cryptoassets.
In fact, the recent fall of the crypto market served as an excuse for the organization to warn again about the risks involved in the cryptocurrency industry.
Still, this organization recognizes the global expansion that cryptoassets have achieved in just over a decade and that they will possibly continue to grow rapidly in the future.
In May of this year, the Committee he pointed Traditional banks are likely to increase their exposure to cryptocurrencies as indicators of greater innovation capacity, more advanced economic development and global financial inclusion indices grow.
Main image from Istock
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