Banking Regulators Call for Conservative Capital Rules in Bitcoin Holdings

The Swiss-based Basel committee says that Bitcoin should be subject to a new "conservative prudential treatment."

The Basel Committee on Banking Supervision (BCBS), a group composed of regulators from the globe’s leading financial centers, said on Thursday that banks should set aside enough capital to cover any Bitcoin holdings in full, seeking a conservative approach. According to the committee, the strategy should be adopted to prevent any side effects due to the widespread use of cryptos by major lenders.

In fact, the group, quoted by Reuters, proposed some ‘twin approach’ to capital requirements for virtual currencies in the wake of what they named a rising sector. Furthermore, the Swiss-based Basel committee stated in a public consultation paper that although banks exposure is limited to crypto-assets, it could pose a risk for the future if proper capital requirements are not implemented on time.

One of the proposals made by the committee is to split the current conditions into two groups. One should include tokenized traditional assets and stablecoins, which should be treated in the same way as bonds or equities. “This means the weighting could range between 0% for a tokenized sovereign bond to 1,250% or full value of asset covered by capital,” the report reads.

The second group should have overall cryptocurrencies like Bitcoin, but with a ‘conservative prudential treatment’ that seeks a risk weighting of 1.250%.

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“The capital will be sufficient to absorb a full write-off of the crypto-asset exposures without exposing depositors and other senior creditors of the banks to a loss,” the Basel Committee on Banking Supervision commented.

El Salvador Case

Additionally, there are concerns about the recent officialization of Bitcoin as a legal tender in El Salvador by the government of Nayib Bukele. Central banks have been keeping a cautious stance towards cryptos, repeatedly warning investors that they could lose all their money on any crypto-related investment.

Still, the Swiss-based Basel committee recommends conducting more public consultations on capital requirements before establishing final rules.

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