Basel Committee finalizes crypto exposure rules for banks

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The Basel Committee met on July 2-3 and made policy decisions on issues that included disclosure of banks’ crypto exposure. Its decisions are part of the Basel III reforms that were begun in 2019 to enhance the resilience of European Union banks through regulation, supervision and risk management.

A disclosure framework for banks’ crypto assets was proposed in December 2022 and opened for comments in May 2023. The framework includes a set of targeted amendments to the original proposal and revisions to the prudential standard for stablecoin holdings.

The long and winding road to regulation

Disclosure is intended to enhance transparency and encourage market discipline. Updated standards will be published later in July, according to a Bank for International Settlements (BIS) statement.

The committee’s consideration of banks’ crypto exposure dates to 2019. In 2021, it proposed placing crypto in its high-risk Group 2 set of assets. Crypto would have a 1,250% risk weight, requiring banks to have capital equal to the value of its crypto exposure. Group 2 holdings were restricted to under 1% of the value of their Group 1 holdings.

Stablecoins were assigned a new designation of 1b that did not impose requirements on banks’ holdings beyond those for Group 1. However, stablecoins with “ineffective stabilisation mechanisms” were placed in Group 2. Industry response to the proposed restrictions was unenthusiastic.

In December, the committee proposed introducing a maximum maturity limit for banks’ reserve assets and overcollateralizing stablecoin holdings to offset potential depegging.

Basel, MiCA add up to lots of limits

In addition, the committee discussed the prudential implications of banks’ issuance of stablecoins. It concluded that “these risks are broadly captured by the Basel Framework,” but the committee will continue to monitor the area.

Source: Bank for International Settlements

Related: UK banking regulator to propose crypto issuing, holding rules after Basel 3 finalized

In addition to the new Basel standards, stablecoin issuers must meet new Markets in Crypto-Assets (MiCA) regulations.

The Basel Committee on Banking Supervision is hosted and supported by the BIS, but its governance and agenda are guided by the central banks of the Group of 10 countries. Changes to current Basel III standards will go into effect on Jan. 1, 2026, after being moved back from Jan. 1, 2025.

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