Central banks decide on strict crypto requirements
Dhe Basel Committee on Banking Supervision has passed strict requirements for investments in crypto assets. The supervisory body of central bank governors and heads of financial supervisory authorities (GHOS) approved the catalog of measures at its meeting on Friday. Banks involved in crypto assets such as Bitcoin invest, there is a risk of high equity surcharges, which can have a risk weight of 1250 percent for particularly risky forms of investment.
In the standard approach of the Basel capital adequacy rules (Basel III), for which the Basel Committee is responsible, the risk weight for loans is 8 percent. With a risk weight of 1250 percent, investments in particularly risky crypto assets become uninteresting for banks. In addition, the Basel Committee, which is affiliated with the Basel-based Bank for International Settlements (BIS), limits banks’ potential investments in high-risk digital assets.
On the other hand, the Basel Committee recognizes that there are also crypto assets that are high quality, such as currency-based stablecoins or digital securities (tokens) that are based on actual assets. For these, the banks can then apply the Basel capital rules as for ordinary loans or securities. However, the crypto values must then also pass risk tests.
After introducing the central banks and supervisors, the banks are said to have invested less than 1 percent of their liable capital (Tier 1) in the very risky crypto assets. If this limit is exceeded, the strict risk weight of 1250 percent applies to the amount in excess. If a bank is above 2 percent overall, it must apply the high risk weight to all risky crypto assets.
But even the digital assets that do not belong to the first quality level must be backed by the banks with 100 percent equity. The Basel Committee, founded in 1974, sets international standards such as the Basel III capital rules for banking supervision. It includes the central banks and supervisory authorities from 27 countries as well as the European Central Bank for the European Union (EU).
Since the beginning of the year, the prices of many crypto assets have crashed. The Basel Committee and the BIS are critical of digital assets like Bitcoin. The BIS is developing digital central bank money with the leading central banks.