The Basel Committee, which is in charge of establishing international banking standards, has completed its new regulations regarding banks’ exposure to cryptocurrencies. The document proposes two distinct crypto asset classes, separating them based on the number of collateral banks might keep for each one and including tokenized tangible assets, stablecoins, and other cryptocurrencies in one class and other cryptocurrencies in the other.
The Basel Committee Sets Final Rules For Crypto Exposure
Standards bodies are now outlining the methods in which conventional financial institutions will be able to handle cryptocurrency as banks have entered the world of cryptocurrency services. The Basel Committee, the global standards-setting body for banks, has finalized the regulations outlining the conditions under which institutions may be exposed to cryptocurrencies, categorizing the assets into two classes.
Stablecoins and tokenized assets are included in the first group, while other cryptocurrencies are included in the second.
The institution issued new rules on December 16, including limiting the number of cryptocurrency banks may hold. This is advised to be 1% of their Tier 1 capital, which consists of these institutions’ essential assets, including reserves and stocks. In addition, the Basel Committee has limited the number of cryptocurrency banks that can retain to 2%.
Stablecoins, which fall under the first category, must adhere to tight criteria to qualify as such and will not be accepted as collateral.
Changes To The Framework
After receiving harsh criticism for some of the choices made as part of the second version of this ruleset, which was published on June 30, the group held the third round of consultations before releasing the updated guidelines. For instance, hedging of bitcoin assets is now included in the agreement and is subject to a 100% capital charge, whereas it was not in a previous version.
Pablo Hernandez de Cos, head of the Basel Committee and governor of the Bank of Spain, explained the significance of this crypto framework as follows:
Another illustration of our dedication, readiness, and capacity to act globally to reduce new financial stability concerns is the Committee’s standard on crypto assets.
The Basel Committee estimated that banks worldwide were exposed to bitcoin assets totalling $9 billion in October.
The laws governing cryptocurrencies will come into effect on January 1, 2025, and as the Committee continues to assess how the situation with banks is acting, more amendments may be made.