Basel committee actions toughest capital rule for crypto assets

The banking supervisory authority, Basel committee has actioned some toughest capital rule for crypto assets.

The global regulators proposed that the banks must set aside enough capital to cover losses on any bitcoin holdings in full in a step that could possibly prevent wide-scale use of the cryptocurrency by big lenders.

It has proposed a twin approach to capital requirements for crypto assets held by banks in its bespoke rule for the nascent sector.

The Basel Committee on Banking Supervision is made up of regulators from the globe’s leading financial centres.

Central banks across the world have warned that investors in cryptocurrency must be ready to loose all their money, this is after El Salvador becoming the first country in the world to adopt bitcoin as a legal tender.

In a consultation paper by Basel Committee, it was said that crypto assets exposure to banks are limited and if capital requirements are not introduced, global financial stability from fraud, cyberattacks, money laundering, and terrorist finance could increase

Bitcoin and other cryptocurrencies are currently worth around $1.6 trillion globally, which is still tiny compared with bank holdings of loans, derivatives and other major assets.

Under Basel rules, a 1,250 percent risk weight translates into banks having to hold capital at least equal in value to their exposures to bitcoin or other group 2 crypto-assets.

”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,” it added.

Basel’s rules require banks to assign ”risk weightings” to different types of assets on their books, with these totted up to determine overall capital requirements.

About Basel Committee on Banking Supervision

The Basel Committee on Banking Supervision (BCBS) was established by the central bank governors of the group of ten countries in 1974