The group of central bank governors and banking supervisors have approved a prudential standard aimed at mitigating the risks of banks’ exposure to cryptocurrency. An opportunity for the Basel Committee to finalize its work program for 2023-2024 as well as its strategic priorities for the same period.
Crypto volatility worries the Basel Committee
” The Bank of International Settlements has just finalized a policy allowing banks to hold 2% of their reserves in #Bitcoin. It’s $3.6 trillion. »
This primarily represents a finalized proposal for a policy suggesting a 2% cap on crypto exposure for banks. The GHOS, the Basel Committee’s supervisory body, specified that:
” In addition to all traditional tokenized assets and stablecoins that do not qualify for classification, Group 2 includes all non-backed cryptoassets. A bank’s total exposure to Tier 2 crypto-assets should generally not exceed 1% of the bank’s Tier 1 capital and should not exceed 2% of the bank’s Tier 1 capital “, precise Bitcoin Magazine.
As a reminder, the Bank for International Settlements (BIS) was counting on a 1% policy for global banks. However, these financial institutions have suggested a reserve limit of 5%. The 2% put forward by the Basel Committee would be a compromise between the two proposals.
Bank security first
It is highly likely that the fall of Terra and FTX, robbing the cryptosphere of billions of dollars, would have something to do with these initiatives.
In the Press release of the BIS, Tiff Macklem, president of the GHOS and governor of the Bank of Canada is jubilant.
” Today’s decision by the GHOS marks an important step in building a global regulatory foundation to mitigate the risks posed by crypto-assets to banks. It is important to continue monitoring bank-related developments in the crypto-asset markets. We remain ready to take further action if necessary “, he specifies.
Pablo Hernandez de Cos, Chairman of the Basel Committee and Governor of the Bank of Spain, supports the exemplary nature of this new standard.
” The Committee’s work program for 2023-24, approved today by the GHOS, aims to further strengthen the regulation, supervision and practices of banks worldwide. It focuses in particular on emerging risks, digitalisation, climate-related financial risks as well as the monitoring and implementation of Basel III”, he pointed out.
Basically, banks recognize that CBDCs will not be able to take the place of cryptos in the financial chessboard.
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