Basel Committee finalizes rules on banks’ exposure to crypto-currency assets

The document establishes two different classes of crypto assets, including tokenized real assets and stablecoins in one, and other cryptocurrencies in the other, distinguishing between collateral and the amount banks can hold for each.

Basel Committee sets final rules for crypto-currency exposure

As banks have entered the crypto-currency services space, standards bodies are now defining the means by which traditional financial institutions will be able to hold crypto-currencies. The Basel Committee, which is the standard-setting body for banks globally, has finalized rules that will define the requirements for banks to be allowed to have exposure to crypto-currencies, dividing the assets into two different groups.

The first group includes stablecoins and tokenized assets, while the second includes other cryptocurrencies.

Among the new guidelines announced on December 16 by the institution, is the establishment of the maximum amount of crypto that banks can have. It is recommended to set it at 1% of their Tier 1 capital, which includes the core assets of these institutions, such as reserves and shares. However, the Basel Committee sets the maximum amount of crypto that banks will be allowed to hold at 2%.

Stablecoins, which are part of the first group, must follow strict rules to be considered as such, and will not be allowed to be received as collateral.

Evolution of the framework

This new group of rules is the result of the third consultation among the group’s members, after receiving strong criticism for some of the decisions adopted in the second iteration of this rule set, which was published on June 30. For example, the most recent version of the document includes hedging of crypto-currency assets, and sets a 100% capital charge for it, whereas the previous version did not.

Speaking about the importance of this framework for crypto-currencies, Pablo Hernandez de Cos, chairman of the Basel Committee and governor of the Bank of Spain, said:

The Committee’s standard on crypto-assets is yet another example of our commitment, willingness and ability to act in a globally coordinated manner to mitigate emerging financial stability risks.

In October, the Basel Committee determined that banks around the world were exposed to $9 billion worth of crypto-currency assets.

The crypto-currency rules will begin on Jan. 1, 2025, and will be subject to further changes as the committee monitors the behavior of the crypto-currency situation with banks.