The Basel Committee on Banking Supervision (BCBS), a global panel of bank and central bank supervisors, has proposed new requirements for banks that want to own a cryptocurrency like Bitcoin (BTC).
In an advisory document released Thursday, the committee made preliminary proposals for the bank’s prudent approach to cryptocurrency.
The thesis is based on the content of the Committee’s 2019 deliberations report and on responses received from various stakeholders and international actors.
The purported volatility of the cryptocurrency and the potential for illegal use of BCBS have assigned Bitcoin a risk weight of 1250%. Essentially, this means that banks must have $1 in capital for every dollar of bitcoin they have.
According to the document, this will ensure that there is sufficient capital to cover the full depreciation of the crypto-assets, “without exposing depositors and other major bank lenders to losses.”
BCBS has proposed dividing cryptocurrencies into two main categories: those eligible for processing under the Basel system with some modifications, and assets such as Bitcoin, which are subject to a new conservative supervision regime.
Source: Bank for International Settlements.
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The first category will include traditional tokenized assets, as well as “cryptocurrencies with effective stability mechanisms,” i.e. stablecoins.
The second group includes bitcoin and other assets that “do not meet any of the classification conditions,” for example, using the fixing mechanism.
BCBS notes that a high risk weight of 1250% would result in a “conservative outcome” for the direct impact of cryptocurrencies. However, with regard to crypto-derivatives, the committee noted that “care should be taken when specifying a ‘value’ in a formula to ensure that the outcome is equally conservative.”