Banks have taken the loss of full Bitcoin holdings proposed by global banking regulators on Thursday as a “conservative” measure that could prevent major lenders from using cryptocurrencies extensively. You need to secure enough capital to cover it.
The Basel Committee on Banking Supervision, which consists of regulators from the world’s major financial centers, proposed a twin approach to the capital requirements of banks’ crypto assets in the first custom rules for the early sectors.
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Major economies, including China and the United States, have suggested a tougher approach in recent weeks and are planning to develop their own central bank digital currencies.
The Swiss-based Basel Committee on Banking Supervision (Basel Committee on Banking Supervision) said in a public agreement that banks have limited exposure to virtual assets, but if capital adequacy restrictions are not introduced He said continued asset growth could increase the risk to global financial stability.
Bitcoin and other cryptocurrencies are currently worth about $ 1.6 trillion worldwide, but still small compared to banks’ loans, derivatives and other major assets. ..
Basel’s rules require banks to assign “risk weighting” to different types of assets on their books, which together determine the overall capital requirement.
Regarding crypto assets, Basel proposes two broad groups.
The first includes certain tokenized traditional assets and stable coins that are treated like bonds, loans, deposits, stocks, or commodities under existing rules.
This means that weights can range from 0% to 1,250% of tokenized sovereign debt or the full amount of assets covered by capital.
Nonetheless, given that virtual assets are based on rapidly evolving new technologies such as blockchain, this is an operational risk that requires an “additional” capital charge for all types. Basel said it could increase the likelihood.
The second group contains cryptocurrencies such as Bitcoin. These cryptocurrencies are subject to a new “conservative prudential process” with a risk weight of 1,250% due to their “inherent risk”.
Bitcoin and other cryptocurrencies are not linked to the underlying asset.
Under Basel’s rules, a risk weight of 1,250% means that banks must hold capital that is at least as valuable as their exposure to Bitcoin and other Group 2 crypto assets.
“Capital is sufficient to absorb the full amortization of crypto asset exposures without exposing depositors and other top creditors of the bank to losses,” he added.
Few other assets have such conservative treatment under Basel’s existing rules, including investments in funds and securitizations where banks do not have sufficient information about their underlying exposures. I will.
Bitcoin’s value fluctuated sharply, hitting a record high of around $ 64,895 in mid-April and then dropping to around $ 36,834 on Thursday.
Banks have different desires for cryptocurrencies. HSBC remarks There are no plans for a cryptocurrency trading desk as digital coins are volatile. Goldman Sachs reopened its crypto trading desk in March.
Given the rapidly evolving nature of crypto assets, Basel said further public consultation on capital requirements is likely to take place before the final rules are published.
Central Bank Digital Currency is not included in the proposal.
© Thomson Reuters 2021
https://gadgets.ndtv.com/internet/news/bitcoin-price-conservative-capital-rule-bank-regulator-cover-loss-holdings-widescale-use-reduce-lenders-basel-committee-2460881#rss-gadgets-all Bitcoin Holdings should face “conservative” capital restrictions from banks, global regulators suggest