Bitcoin ($BTC): Bank Regulators Put Cryptocurrency in Highest Risk Category

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Banks will face the toughest capital requirements for stakes in Bitcoin and other crypto assets as global regulators plan to counter threats to financial stability from the volatile market.

The Basel Committee on Banking Supervision said Thursday that the banking industry is at increased risk from crypto assets due to the potential for money laundering, reputational challenges and wild price volatility that could lead to defaults.

The panel proposed applying a 1,250% risk weight to a bank’s exposure to Bitcoin and certain other cryptocurrencies. In practice, this means that a bank may need to hold a dollar of capital for every dollar worth of Bitcoin, based on a minimum capital requirement of 8%. Other assets with this highest possible risk weight include securitized products for which banks do not have sufficient information about the underlying exposures.

“The growth of crypto assets and related services has the potential to raise financial stability concerns and increase risks for banks,” said the Basel Committee, which includes the Federal Reserve and the European Central Bank the report. “The capital will be sufficient to absorb a full write-off of the crypto asset exposures without exposing depositors and other senior creditors to the banks.”

Bitcoin was up about 5%, reaching $ 38,226 by 11:43 a.m. in London.

Read more on Bitcoin Response to the Basel Plan

The proposal can be publicly commented on before it goes into effect, and the committee said these initial guidelines are likely to change multiple times as the market moves forward. No timetable was given in the report, but the process of agreeing and implementing the Basel rules around the world can typically take years.

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