Banks’ exposure to risky cryptocurrencies should be limited to 1%, Basel Committee proposes

The consulting paper proposes to divide crypto assets into groups 1 and 2. Group 1 consists of traditional tokenized assets such as stocks issued on the blockchain and stablecoins that meet classification requirements.

Classification requirements include passing the redemption risk and basis risk tests. The redemption risk test ensures that Stablecoin is always redeemable at the peg value. The basic risk test determines if stablecoins can be sold near the peg value.

Stablecoins and cryptocurrencies that do not meet these requirements are included in Group 2. These are considered more risky than Group 1 assets and include cryptocurrencies such as Bitcoin and Ethereum, as well as algorithm stablecoin. Therefore, the Commission recommends a 1% cap on exposure to Group 2 crypto assets.

For major banks such as JP Morgan and Chase Tier 1 capital is close to $ 264 billionThe 1% cap means billions of dollars that can be held in cryptocurrencies.

Earlier consultation papers suggested that banks need to secure the same amount of capital backing for all cryptocurrency exposures. In other words, if the bank had $ 100 in cryptocurrency, it had to reserve $ 100 as a reserve.

However, the Commission is paying attention to the criticisms of previous consultation papers. The new paper recognizes the potential for hedging and proposes lighter rules for cryptocurrencies that use equivalent liquidity derivatives such as exchange-traded funds (ETFs).