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Basel Committee Insists Banks Must Prepare Enough Cash to Cover Losses on Bitcoin: Details

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Thu, 06/10/2021 - 10:36
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Yuri Molchan
Basel banking regulator orders bank to prepare to cover losses on Bitcoin in full, puts BTC in the highest risk category
Basel Committee Insists Banks Must Prepare Enough Cash to Cover Losses on Bitcoin: Details
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As reported by Reuters, the Basel Committee on Banking Supervision (BCBS) has suggested that banks should prepare enough funds to compensate any losses on Bitcoin holdings in full. This is a "conservative" step that may stop major banks from using Bitcoin on a large scale.

Thus, Swiss-based BCBS has put Bitcoin in the highest risk category in a bank capital proposal.

Stablecoins to be treated as regular bonds

Basel, which consists of regulators from the world's top financial centers, has suggested several rules on capital requirements for Bitcoin and other crypto that are now held by a large number of banks.

The committee believes that even though crypto assets are used on a limited scale, their further growth may increase risks for global financial stability unless banks follow certain capital requirements.

Basel requires that banks will treat stablecoins as loans, deposits, bonds, etc. Risk weight, for them, ranges between zero percent for a tokenized sovereign bond and 1,250 percent or the full value of an asset that is covered by capital.

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Bitcoin is put in the highest risk category

As for Bitcoin and other coins not pegged to any assets, the risk weight here would be 1,250 percent due to the "unique risks" linked to them.

Thus, banks would have to set aside enough capital to cover the exposure of their customers to Bitcoin and other cryptocurrencies.

The capital will be sufficient to absorb a full write-off of the cryptoasset exposures without exposing depositors and other senior creditors of the banks to a loss.

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About the author

Yuri is a crypto journalist interested in technology and technical innovations. He has been in crypto since 2017. Believes that blockchain and cryptocurrencies have a potential to transform the world in the future in many of its aspects. ‘Hodls’ major cryptocurrencies and has written for multiple crypto media outlets. 

His articles have been quoted by such crypto influencers as Tyler Winklevoss, John McAfee, CZ Binance, Max Keiser, etc.

Currently Yuri is a news writer at U.Today and can be contacted at yuri.molchan@u.today.