Thursday, Basel Committee on Banking Oversight recommended during a second consultation on the prudential treatment of crypto asset exposures that banks limited their exposure to Group 2 crypto assets to only 1% of Tier 1 capital.
Group 1 digital assets include traditional assets that have tokens, such as synthetic stocks, or that have effective stabilization mechanisms, such as regulated stablecoin. Under the new proposal, Group 1 digital assets will be subject to at least the same risk -based capital requirements as traditional capital assets in the current capital framework, Basel III.
However, cryptocurrencies that do not meet the above requirements will be classified as Group 2 digital assets, which theoretically include non-stablecoin, non-tokenized cryptocurrencies like Bitcoin (BTC) and most altcoins. Hence, banks can only assign 1% of total equity or net asset value in long or short positions to Group 2 digital assets.
In addition, the Basel Committee considers banks with a 1.250% risk premium for Group 2 digital assets. In comparison, stocks typically have a risk premium of 20% to 150% associated with their face value, depending on the company’s credit rating. In Basel III, a bank’s risk weighted assets must not exceed 10.5% of Tier 1 capital for prudent leverage.
The move would severely hinder banks ’ability to buy volatile cryptocurrency in the future because, for the argument, banks would have to add $ 125 million risk-weighted assets to their portfolios for every $ 10 million in Bitcoin purchased, making them cheaper than assets by low risk weight premiums. Basel III it is an international regulatory agreement that almost all financial institutions in developed countries must comply with and be enforced by law.