Money

Bitcoin, Other Crypto Assets Targeted for Stiff Banking Regulation

The top global standard setter for banking regulation proposed a strict new rule that would require banks to essentially set aside a dollar in reserves for every dollar of bitcoin they own.

The Basel Committee for Banking Supervision, a group of global central bankers and regulators, announced the plan Thursday in a public consultation about how it intends to treat cryptocurrency assets, which it said had prompted concerns about consumer protection, money laundering and terrorist financing.

“Certain cryptoassets have exhibited a high degree of volatility, and could present risks for banks as exposures increase,” the Basel, Switzerland-based committee said in a statement.

Interest in cryptocurrencies from mainstream financial firms and corporations has surged this year.

Mastercard Inc.

has said it plans to support some cryptocurrencies on its network and

Bank of New York Mellon Corp.

has invested in a cryptocurrency startup.

The committee, which includes the Federal Reserve, European Central Bank and other major central banks, doesn’t enforce rules itself but sets minimum standards that regulators around the world agree upon and implement locally.

The committee said that banks should apply a 1,250% risk weight to bitcoin, which is “similar in effect to the deduction of the asset from capital.” If a bank held $100 of bitcoin exposure, it would give rise to risk-weighted assets of $1,250, which when multiplied by the minimum capital requirement of 8% results in setting aside at least $100, the committee said in its statement.

The committee cited the lack of record of these assets and the very high volatility in proposing the rules. The capital requirements would put bitcoin and other coins on par with other risky assets, such as ones where the bank doesn’t have full information or has very large investments in companies.

The committee proposed less stringent capital requirements for crypto assets that met certain conditions, such as tokenized traditional assets and stablecoins. These type of crypto assets are often pegged to the value of a mainstream currency such as the U.S. dollar, and so are theoretically less volatile.

These are eligible for treatment under the existing Basel rules, while bitcoin would be subject to the “new conservative prudential treatment.”

Banks have until Sept. 10 to respond to the committee’s proposals. Central bank digital currencies aren’t included in the consultation.

Write to Simon Clark at simon.clark@wsj.com

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Bitcoin, Other Crypto Assets Targeted for Stiff Banking Regulation Source link Bitcoin, Other Crypto Assets Targeted for Stiff Banking Regulation

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