Banks will face the most strenuous requirements if they want to be exposed to cryptocurrencies.
Basel regulators said today that banks face “the greatest risk” from Bitcoin and other cryptocurrencies as they are tools for money laundering and a threat to the broader financial market.
*BITCOIN PUT IN HIGHEST RISK CATEGORY IN BANK CAPITAL PROPOSAL
— *Walter Bloomberg (@DeItaone) June 10, 2021
“The growth of cryptoassets and related services has the potential to heighten concerns about financial stability and increase the risks faced by banks,” said the Basel Committee, which includes the Federal Reserve and the European Central Bank.
“The capital will be enough to absorb a full write-off of cryptoasset exposures without exposing depositors and other senior bank creditors to a loss.”
What does this mean for Bitcoin?
The committee proposed a “risk weight” of 1,250% to be applied to a bank’s exposure to Bitcoin and other cryptocurrencies. An asset “risk-weighted” are a bank’s assets or off-balance sheet exposures weighted according to the potential risk the bank faces if things go wrong.
This calculation helps determine a financial institution’s capital requirement for each asset or assets it owns. This would mean that banks hold a dollar of capital for every dollar of Bitcoin they hold or store, based on an 8% minimum capital requirement cited by Bloomberg .
Capital requirements are set to be different for various types of cryptocurrencies. Tokens secured by, or tied to, real-world assets are likely to have a lower capital requirement .
Public comments are now welcome on the proposal before it goes into effect, and the committee could change the policies as and when the market matures.