Basel Committee Proposes Banks Set Aside Capital to Cover Bitcoin Exposure

Thursday 10 June 2021, 10:16 PM AEST - 5 days ago

The worlds most influential banking regulator proposed that banks with bitcoin (BTC, +6.95%) exposure should set aside capital to cover losses in full.

  • The Bank for International Settlements' Basel Committee suggested splitting crypto assets into two groups: those eligible for treatment under existing frameworks and those that are not.
  • The first category would comprise tokenized assets and stablecoins, which "with some modifications and additional guidance," would be eligible for treatment under existing rules.
  • Bitcoin and similar cryptocurrencies would fall under the latter category "since these pose additional and higher risks," an announcement Thursday said.
  • "They would be subject to a new conservative prudential treatment," according to the proposal.
  • The committee proposed a risk weighting of 1,250% for bitcoin, ethereum (ETH, -0.58%) and other cryptocurrencies. That would require banks to hold capital equivalent to the face value of the exposure.
  • "A $100 exposure would give rise to risk-weighted assets of $1,250, which when multiplied by the minimum capital requirement of 8% results in a minimum capital requirement of $100 (ie the same value of the original exposure, as 12.5 is reciprocal of 0.08)," the proposal said.
  • The committee is inviting from stakeholders with a deadline for submission Sept. 10.

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