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BIS May Allow Banks To Hold 1% Of Reserves In BTC

BIS May Allow Banks To Hold 1% Of Reserves In BTC

The Bank for International Settlements has always maintained a skeptical stance regarding cryptocurrencies, which was further exasperated after the recent crash. However, it seems to have softened its stand and may allow banks to hold up to 1% of their reserves in cryptocurrencies like Bitcoin. 

Limiting Banks’ Total Exposure 

The Bank for International Settlements (BIS) Committee on Banking Supervision (BCBS) proposed limiting banks’ total exposure to Group 2 crypto assets to 1% of Tier 1 capital. The proposal was made in its consultative document, “Second consultation on the prudential treatment of crypto assets,” published on the 30th of June. 

The International Standard Setter is setting out just how much capital lenders need to hold for their crypto exposure. International rules, reinforced after the 2008 financial crisis, state that lenders should have more capital reserves that can be utilized as a backup in case other assets such as loans turn sour. The rules also stop banks from having significant exposure to one entity, which would mean the bank’s survival could depend on just one institution. According to the committee, the requirements should also be applicable to crypto. 

“The large exposure rules of the Basel Framework are not designed to capture large exposures to an asset type, but to individual counterparties or groups of connected counterparties. This would imply, for example, no large exposure limits on a crypto asset where there is no counterparty, such as bitcoin.”

1% Exposure Limit For Riskiest Crypto Assets 

For the riskiest crypto assets, which also include ones not backed by conventional reserves or inadequately-backed stablecoins, there would be an exposure limit set at 1% of tier 1 capital. For banking behemoths such as JPMorgan Chase, 1% of tier 1 capital could potentially amount to billions of dollars. 

A Potential Softening Of Its Stance? 

The committee looks to have softened its stance regarding crypto holdings that the bank is able to insure against its risk. This change in stance seems to have come after the BIS received significant pushback after its previous approach in its first consultation paper was deemed as too cautious. According to the original plan, a bank with an exposure of $100 to crypto would need a minimum capital requirement of $100, taking away any incentive to be involved in the crypto market. 

Skeptical Towards Crypto 

BIS has maintained a fairly skeptical outlook towards crypto. The global central bank body had released a bulletin back in June in which it stated that crypto could not fulfill the role of money and went on list problems such as high fees and congestion, which end up fragmenting the landscape. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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