Entitled Prudential treatment of crypto asset exposures (in literal translation) the document presented by the Bank for International Settlements (BIS) last Friday (16) presents new guidelines regarding banks’ exposure to cryptocurrencies.
Known as the “central bank of central banks”, the BIS maintained the figures presented in June this year. That is, banks can have up to 1% exposure to cryptocurrencies such as Bitcoin.
However, it is worth noting that the number increases for other assets, such as 100% supported stablecoins. In this case, the maximum exposure is reduced to 2%.
“The Basel Committee has published a global prudential standard for banking crypto-asset exposures, under which crypto-assets and stablecoins not backed by ineffective stabilization mechanisms will be subject to prudent conservative treatment.”
The #BaselCommittee has published a global prudential standard for banks’ exposure to cryptoassets, under which unsecured cryptoassets and stablecoins with ineffective stabilization mechanisms will be subject to conservative prudential treatment https://t.co/cVVHxnreVD pic.twitter.com/qFZHxrXBpx
— Bank for International Settlements (@BIS_org) December 16, 2022
Understand the BIS classification
In the text, the Basel Committee divides cryptocurrencies into two groups. The first consists of lower risk assets such as stablecoins with 100% coverage. The second includes unsupported assets such as Bitcoin, Ethereum, and most cryptocurrencies.
“A bank’s total exposure to Group 2 crypto-assets should not exceed 2% of the bank’s Tier 1 capital and should generally be less than 1%”points out the BIS in the published document.
If banks exceed this limit, they may have a new limit of up to 2%, but it will be reduced. If this new limit is exceeded, they will receive more punishments.
Finally, the BIS suggests that it will reassess such percentages as the cryptocurrency market evolves. That is, the committee seems comfortable with this new money era.
Banks already have billions in Bitcoin
In a study conducted by the BIS in September this year, the commission pointed out that the world’s largest banks already owned $9 billion (R$48 billion) worth of cryptocurrencies. At the time, most Bitcoin, followed by Ethereum, were the two largest in the market.
Finally, the new classification of cryptocurrencies by groups should also accelerate their global regulation and adoption. Until then, banks had worked without guidelines.
As for the most optimistic investors, they believe that Bitcoin can even integrate central bank cash registers, taking on the same role as gold. However, so far no major country has taken this risk.
Source: Live Coins
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
