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Cryptocurrencies need tough bank capital rules

by on14 June 2021

Top bankers say

Global regulators have said cryptocurrencies such as bitcoin should come with the toughest bank capital rules to avoid putting the wider financial system at risk should their value collapse suddenly.

The Basel Committee on Banking Supervision, which consists of regulators from the world's leading financial centres, is proposing a "new conservative prudential treatment" for crypto-assets that would force banks to put aside enough capital to cover 100 percent of potential losses.

That would be the highest capital requirement of any asset, illustrating that cryptocurrencies and related investments are seen as far more risky and volatile than conventional stocks or bonds.

The world's most powerful banking standards setter warned on Thursday that certain crypto-assets had proved to be highly volatile, meaning they could "present risks for banks as exposures increase, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering/terrorist financing risk; and legal and reputation risks".

However, it said looser rules could apply to stablecoins -- a new form of a digital asset usually pegged to the value of a traditional currency -- that may require only a level of capital rules applied to traditional assets such as bonds, loans, deposits, equities, or commodities. The committee's proposals, which will now go out for consultation, are meant to help protect the global financial system in case cryptocurrency prices plummet.

Last modified on 14 June 2021
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