Basel Committee suggests introducing maturity limits for stablecoin reserve assets

December 14, 2023 Coin Telegraph

Basel Committee to consider disclosure requirements for banks’ crypto assets

October 6, 2023 Coin Telegraph

Banking

The committee already imposes a limit on crypto holdings in bank reserves, but the concentration of crypto in a small number of banks contributed to the March crisis, it said.

Fallout from the banking crisis earlier this year continues as the Basel Committee on Banking Supervision considers requiring banks to disclose their crypto asset holdings. The committee, which operates under the aegis of the Bank for International Settlements, identified holding crypto as one of the factors that led to the demise of several banks in March.

At its meeting on Oct. 4-5, the committee looked at the causes behind the failures of Silicon Valley Bank (SVB), Signature Bank of New York (SBNY) and First Republic Bank (FRC), as well as the near-failure of Credit Suisse (CS), which was bought by its competitor UBS.

According to the committee’s report, three structural trends may have indirectly contributed to the banks’ failures. They were the increasing role of nonbank intermediation in recent years, crypto assets concentrated in a small number of banks and the ability of customers to move their funds faster due to increasing digitalization.

The report also examined policy issues in detail.

*Supervisory and regulatory issues in the banking crisis of 2023. Source: Basel Committee*

The report especially highlighted the role of crypto in the failure of Signature Bank. The committee found:

SBNY’s significant client concentration of digital asset companies put it in a precarious position when the “crypto winter” hit in 2022. […] SBNY’s poor governance and inadequate risk management practices put the bank in a position where it could not effectively manage its liquidity in a time of stress.

SBNY was closed by the New York State Department of Financial Services on March 12. The regulators stated at the time that crypto was not behind their decision.

The discussion is not an indication of planned revisions to the Basel Framework, the report said. The committee amended its framework to limit crypto assets in bank reserves to 2% in January.

At its 4-5 October meeting, the #BaselCommittee agreed to consult on cryptoasset and climate disclosures, approved the annual G-SIB assessment and published its report into the banking turmoil of early 2023 #BaselIII #FinancialRegulation https://t.co/iLVbtP2VzS pic.twitter.com/aSRw7YYHP7
— Bank for International Settlements (@BIS_org) October 5, 2023

A statement accompanying the report said a consultation paper on crypto asset exposure disclosure would be published soon.

This is only the latest rehash of the banks’ difficult days in March. The United States Federal Reserve Bank and Federal Deposit Insurance Corporation (FDIC) published their conclusions on the events in April, with the FDIC taking another look at it in August.

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Basel Committee wants to limit banks’ digital asset exposure to just 1% of equity

June 30, 2022 Coin Telegraph

Basel

Volatile cryptocurrencies such as Bitcoin would also be subjected to a 1,250% risk premium.

On Thursday, the Basel Committee on Banking Supervision suggested during its second consultation on the prudential treatment of crypto-asset exposures that banks limit their exposure to so-called Group 2 crypto assets to just 1% of their Tier 1 capital.

Group 1 digital assets consist of tokenized traditional assets, such as synthetic stocks, or those with effective stabilization mechanisms, such as regulated stablecoins. Under the new proposal, Group 1 digital assets would be subject to at least equivalent risk-based capital requirements as traditional capital assets within the current capital framework, Basel III.

However, cryptocurrencies that do not meet the above requirements will be classified as Group 2 digital assets, which would theoretically include major non-stablecoin, non-tokenized cryptocurrencies like Bitcoin (BTC) and most altcoins. Therefore, banks would only be able to commit 1% of their total equity or net asset value in either long or short positions toward Group 2 digital assets.

Moreover, the Basel Committee is considering banks adopting a 1,250% risk premium for Group 2 digital assets. In comparison, stocks typically have a 20% to 150% risk premium attached to their nominal values, depending on the company's credit rating. Under Basel III, a bank's risk-weighted assets must not surpass 10.5% of its Tier 1 capital for prudent leverage.

The move would likely severely constrain banks' ability to purchase volatile cryptocurrency in the future as, for the sake of argument, a bank would need to add $125 million worth of risk-weighted assets to its portfolio for every $10 million in Bitcoin purchased, making them far less lucrative than assets with less risk-weighting premiums. Basel III is an international regulatory accord that nearly all financial institutions in developed countries must abide by and is enforced by law.

Basel Committee presses on with restrictive requirements for banks’ crypto holdings

May 31, 2022 Coin Telegraph

Banks

The committee of central banks and regulators has proposed a “conservative prudential treatment” of crypto assets that banking groups say is prohibitive.

The Basel Committee on Banking Supervision met Friday and discussed cryptocurrency, among other topics. The committee stated that it would soon publish its second consultative paper with the intention of finalizing guidelines on the prudential treatment of crypto exposure by banks by year-end.

In a Tuesday press release, the committee issued the following statement, which was likely in reference to the recent collapse of the Terra ecosystem:

“Recent developments have further highlighted the importance of having a global minimum prudential framework to mitigate risks from cryptoassets.”

The committee began consultations on the banking sector's risk exposure to cryptocurrency in 2021 and published a paper on its findings at that time. The committee divided crypto assets into two groups, with tokenized traditional assets and stablecoins forming one group, and all others forming the second. A 1,250% risk weight was assigned to the second group, which included all cryptocurrencies and their derivatives. That meant a bank was expected to hold $1 in fiat money for every $1 worth of cryptocurrency it held.

The committee’s “conservative prudential treatment” led to objections from banking industry groups. The International Swaps and Derivatives Association (ISDA), the Futures Industry Association (FIA), the Institute of International Finance, the Chamber of Digital Commerce and five other organizations said in a letter to the committee that the proposed requirements amounted to “material impediments to regulated bank participation in crypto asset markets.”

The Basel Committee on Banking Supervision is made up of central banks and regulators from 28 countries and jurisdictions, as well as three observer countries and five agencies. It is supported by the Bank for International Settlements, but its decisions do not carry the force of law.

Basel

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