Group items tagged

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 2 digital assets include major non-stablecoin, non-tokenized cryptocurrencies like Bitcoin 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 Basel Committee on Banking Supervision issued a public consultation on preliminary proposals for the prudential treatment of banks' crypto-asset exposures. It divides crypto-assets into two groups. Group 1 is comprised of those eligible for treatment under the existing Basel Framework with some modifications (e.g., certain tokenised traditional assets and stablecoins). Group 2 is comprised of "other" crypto-assets, such as bitcoin, that do not fulfil the classification conditions. Banks would have to hold risk-based capital at least equal in value to their Group 2 crypto-asset exposures (i.e., the maximum of their long and short positions) to absorb a full write-off of the crypto-asset exposures.

The Basel Committee on Banking Supervision (BCBS) recently proposed Basel III capital requirements for banks holding cryptoassets on their balance sheets. The proposal treats stablecoins prudently, rightly suggesting they can more or less fit into the existing Basel framework. But the proposed treatment of Group 2 cryptoassets - cryptoassets that have no issuer, such as bitcoin - completely misses the biggest risk: settlement risk for the banks handling the bitcoin. Traditional banks are simply not set up operationally or technologically to hold on-balance sheet assets, such as bitcoin, that settle in minutes with irreversibility. Bitcoin has no operational fault tolerance.

The Basel Committee agreed to hold a public consultation to seek the views of external stakeholders on the design of prudential treatment of banks' exposures to crypto-assets. This builds on an earlier discussion paper and the responses received from a broad range of stakeholders, and ongoing initiatives under way at other global forums and standard-setting bodies. The consultation paper will be published this week. The Basel Committee is the primary global standard setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters.

Nine banking industry associations have submitted a letter to the Basel Committee on Banking Supervision (BCBS) in response to its proposal to introduce stringent capital requirements for banks looking to hold crypto-assets on their books. In June, the BCBS published a consultation paper that suggested that banks would need to hold $1 in capital for each $1 of Bitcoin exposure. The letter argues for a more nuanced taxonomy of various crypto-assets and their varying risk profiles that would take into account aspects such as the existence of a liquid, two-way market for some crypto assets.

The International Swaps and Derivatives Association, the Global Financial Markets Association, the Futures Industry Association, the Institute of International Finance, the International Securities Lending Association, the Bank Policy Institute, the International Capital Markets Association and the Financial Services Forum, responded to the Basel Committee on Banking Supervision's (BCBS) second consultation on the prudential treatment of crypto-asset exposures.

The Basel Committee on Banking Supervision has published a second public consultation on the prudential treatment of banks' crypto-asset exposures. It builds on the preliminary proposals set out in the June 2021 consultation and the responses received from stakeholders. The basic structure of the proposal in the first consultation is maintained, with crypto-assets divided into two broad groups; Group 1 including those eligible for treatment under the existing Basel Framework with some modifications, and Group 2 including unbacked crypto-asset and stablecoins with ineffective stabilization mechanisms,  which would be subject to a new conservative prudential treatment including an overall gross limit on such holdings. The updated proposals provide more detail on the proposed standard and include new elements such as an infrastructure risk add-on to cover the new and evolving risks of distributed ledger technologies.

The Basel Committee on Banking Supervision reviewed various elements of the prudential standard for bank exposures to crypto-assets published in December 2022. It agreed to consult on potential targeted revisions related to the criteria for stablecoins to receive a preferential "Group 1b" regulatory treatment. The Committee will also consult on various technical amendments to help promote a consistent understanding of the standard. The Committee concluded that crypto-assets that use permissionless blockchains create risks that cannot be sufficiently mitigated at present and therefore agreed to retain the existing "Group 2" treatment for them (1,250% risk weight). A consultation paper will be published before end-2023. https://www.bis.org/press/p231207.htm

The European Central Bank (ECB) published a summary of its thinking on the regulatory aspects of commercial bank holdings of crypto-assets.  It supports the recently finalized Basel Committee on Banking Supervision's (BCBS) standard on the prudential treatment of banks' crypto-asset exposures as a complement to the forthcoming regulation of the crypto-asset sector through the Markets in Crypto-Asset (MICA) regulation. The next step is for the European Union to transpose the Basel standard into its legislation by the January 1, 2025 deadline.

The BIS Basel Committee on Banking Supervision has finalized a proposed policy that would place a 2% limit on banks' Tier 1 capital held in bitcoin and other "Group 2" crypto-assets. Tier 1 capital is the core capital held in a bank's reserves that is used to fund business activities for the bank's clients. It includes common stock, as well as disclosed reserves and certain other assets. Group 1 crypto-assets include tokenised traditional assets (Group 1a) and crypto-assets with effective stabilization mechanisms (Group 1b). Group 1 crypto-assets are subject to capital requirements based on the risk weights of underlying exposures as set out in the existing Basel Framework. Group 2 crypto-assets are those that fail to meet any of the Group 1 classification conditions.

The Basel Committee approved a set of changes to the crypto-asset standard that was first published in December 2022. However, the standard will only be published later this month. It also finalized the set of tables and templates for banks to use in crypto-asset disclosures. https://www.bis.org/bcbs/publ/d567.htm

The Basel Committee on Banking Supervision today published its Report on open banking and application programming interfaces (APIs). The report monitors the evolving trend of open banking observed in Basel Committee member jurisdictions and the use of APIs.

Crypto assets could be subject to a "full deduction" from Common Equity Tier 1 (CET1) capital if held in the banking book, under a hypothetical prudential framework set out by the Basel Committee. In the proposed example, direct holdings of crypto assets would be allocated to the banking book, while indirect exposures would be assigned to the trading book.

The Basel Committee has reviewed the comments received regarding its consultation on the prudential treatment of banks' crypto-asset exposures. It reiterated the importance of developing a conservative risk-based global minimum standard to mitigate prospective risks from crypto-assets to the banking system, consistent with the general principles set out in the consultative document. Accordingly, the Committee will further specify a proposed prudential treatment, with a view to issuing a further consultative document by mid-2022.

The world's largest banks are exposed to about 9.4 billion euros of crypto-assets, a study by the Basel Committee on Banking Supervision (BCBS) found as it considers new rules for the capital that lenders must hold against innovative assets. The exposure, mainly client services involving bitcoin (BTC) and ether (ETH), represents 0.14% of the total exposure to risk from the 19 banks who sent in data, or just 0.01% across all banks. Exposures are distributed unevenly across reporting banks, with two banks making up more than half of overall crypto-asset exposures, and four more banks making up just below 40% of the remaining exposures.

The Bank for International Settlements (BIS) published an executive summary of the Basel Committee on Banking Supervision (BCBS) standard on the prudential treatment of crypto-asset exposures published in December 2022. The standard outlines minimum regulatory, supervisory review and disclosure requirements of banks' crypto-asset exposures under Pillars 1, 2 and 3 of the Basel Framework. Internationally active banks in BCBS member jurisdictions are expected to adopt the standard by 1 January 2025.

In a meeting on October 4-5, the Basel Committee on Banking Supervision (BCBS) looked at the various causes that may have contributed to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank. It concluded that so-called 'crypto assets' concentrated in a small number of banks was one of the three major things that played a role. https://www.bis.org/press/p231005.htm

The Basel Committee on Banking Supervision is proposing revisions to various elements of the prudential standard for bank exposures to crypto-assets published in December 2022. They flesh out the criteria on the composition of the reserve assets that back stablecoins, to be eligible for inclusion in the Group 1b category of crypto-assets, and thus benefit from a preferential regulatory treatment. For example, reserve assets should be comprised of central bank reserves, short-term marketable securities guaranteed by sovereigns and central banks with high credit quality, and short-term deposits at high credit quality banks. If longer-term assets are allowed, the issuer would have to overcollateralize the stablecoin holder claims.

"Draconian though these proposed capital requirements are, they wouldn't completely prevent banks from participating in the crypto space. They could still offer custody, asset management and settlement services for Group 2 cryptoassets. And the regulatory framework for Group 1 cryptoassets potentially opens the door to regulated stablecoins and tokenised assets becoming a regular part of the global financial system.The Basel committee specifically excludes central bank digital currencies from the scope of its proposals, but this regulatory framework could enable commercial banks to hold, trade and issue fully-reserved stablecoins."

The Basel Committee on Banking Supervision published a report that considers the implications of the ongoing digitalization of finance on banks and supervision, including application programming interfaces (APIs), artificial intelligence and machine learning, distributed ledger technology (DLT) and cloud computing. It also considers the role of big techs, fintechs and third-party service providers, and new business models.