Global banks oppose crypto capital requirement rules set out by Basel Committee

• The Basel Committee put forward new rules to curb risks involved with cryptocurrencies.
• The proposal stated that banks must back their digital asset holdings with the equivalent dollar amount in cash.
• Top banks including JPMorgan Chase & Co. have opposed the rules, highlighting that they are overly “conservative and simplistic.”

Several of the biggest banks in the United States and Europe have opposed cryptocurrency rules that have been set out by the Basel Committee for Banking Supervision. The guidelines would initially require banks to set aside capital for every dollar of Bitcoin they own.

Top banks wish not to be priced out of crypto

The Basel Committee for Banking Supervision, a group within the Bank for International Settlements has previously stated in June that global banks with Bitcoin exposure would be required to set aside a dollar for every dollar in cryptocurrency they own to cover any losses in full.

The strict rule aims to curb risks associated with the high degree of volatility exhibited by cryptocurrencies. Popular digital assets, including Bitcoin and Ethereum, were classified with a risk weight of 1,250%. Therefore, the rules proposed that banks hold equal value of their crypto holdings in cash or cash equivalents.

These capital requirements would price banks out of participation although the demand for digital assets from their customers continues to grow. Initially, if the rules were to be enforced, the Basel Committee would categorize cryptocurrencies into two groups, tokens that resemble securities or fully-backed stablecoins. Banks that hold stablecoins would need to be backed on a one-to-one basis with cash.

The Global Financial Markets Association, a forum for banks including JPMorgan Chase & Co. and Deutsche Bank AG, as well as five other associations, including the Financial Services Forum and the Chamber of Digital Commerce, pushed back against the new rules in a letter on September 21. The group highlighted that Bitcoin and other popular cryptocurrencies should not face such strict capital requirements.

Banking regulators around the world have been increasingly concerned about the role cryptocurrencies play in money laundering and terrorist financing. The trade associations further added that the new rules are counterproductive given that they would prevent financial companies from holding digital assets, which would be forced into the unregulated sector in the financial system.

The associations stated that the proposals are “overly conservative and simplistic” and that it was not necessary for Bitcoin and other heavily traded digital assets as well.

On the other hand, stablecoins also witness very narrow price fluctuations, which would not risk them falling under the same capital requirements as those applied to Bitcoin and altcoins. 

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