Banks’ exposure to risky cryptocurrencies should be limited to 1%, Basel Committee proposes
This means banks can hold 1% of its core reserves in cryptocurrencies. For banking mammoths like JP Morgan, this means billions of dollars.
The exposure of banks to cryptocurrencies should be capped at 1% of Tier 1 capital, the Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) recommended in a consultation paper on June 30. Tier 1 capital refers to the core assets held in a bank’s reserves.
This is the committee’s second attempt to lay down standards for how much exposure capital lenders can have to cryptocurrencies. The committee’s first consultation paper published in June 2021 had met with opposition from banks like JP Morgan Chase and Deutsche Bank for being “overly conservative.”
Since the 2008 financial crisis, lenders are required to ensure capital reserves to backup assets such as loans in case of defaults. This also prevents banks from having too much exposure to any one counterparty. Such requirements should also be applicable to cryptocurrencies, the committee said.
The consultation paper proposes dividing crypto assets into Groups 1 and 2. Group 1 consists of tokenized traditional assets such as stocks issued on the blockchain and stablecoins that meet classification requirements.
https://cryptoslate.com/banks-exposure-to-risky-cryptocurrencies-should-be-limited-to-1-basel-committee-proposes/