The Basel Committee on Banking Supervision is proposing stricter rules for banks who hold cryptocurrencies for customers. Most notably, they assert that banks should leave aside enough capital to cover 100% of potential losses in this asset class.
The global regulators say this is necessary to prevent a potential collapse of the wider financial system in the event of a crash in the values of cryptocurrencies. This move would outline the perceived risks of investing in cryptocurrencies rather than stocks, bonds, or real estate.
“Crypto-assets have given rise to a range of concerns including consumer protection, money laundering and terrorist financing, and their carbon footprint,” the Basel Committee said. “The growth of crypto-assets and related services has the potential to raise financial stability concerns and increase risks faced by banks.”
Though the rules can be expected to exempt stablecoins like Tether (USDT) that are pegged to the value of traditional assets like fiat currency, popular holdings like Bitcoin and Ether will certainly be subject to this “new conservative prudential treatment” if these recommendations are widely adopted.
Despite payment processing companies like PayPal, Square, and Mastercard entering the crypto space, governments and regulators have mostly been wary of the new asset class. Price volatility (in the negative direction, in the past few months) and concerns about the environmental impact of mining have been important talking points as of late. This news cycle has been putting Bitcoin in particular to the test, both due to El Salvador’s adoption of BTC as legal tender and a recent FBI breach of a Bitcoin wallet via finding an improperly-stored private key.
The Basel Committee does not enforce rules itself, but sets minimum standards that international regulators around the world implement. Its membership includes the Federal Reserve, European Central Bank, and other major central banks. The secretariat for the committee is based at the Bank for International Settlements, the so-called “central bank for central banks”.
The full text of the consultation can be found here.