Remember back when the Bitcoin bubble burst and everyone was talking about how all banks had to get involved in Bitcoin? Well, it turns out that was just a prelude to the rise of the next big thing in finance. There is a new frontier that is just as dangerous as the Bitcoin bubble, and it’s called blockchain. Now, many banks are rushing in to capitalize on this new technology, while others are running away as fast as they can.
Back in January, the world’s largest bank, Goldman Sachs, published the worlds first bitcoin-specific bank capital plan. Since then, the bitcoin community has been eagerly awaiting the release of a similar plan by the world’s second largest bank, Deutsche Bank, and now it’s finally here.
The Basel Committee on Banking Supervision has published its latest capital plan for global banks, and bitcoin is included in the list of assets that are considered high-risk for potential losses. In an attempt to address this issue, Basel is introducing a new rule that will require banks to hold more capital against certain risks, including digital assets.The Basel Committee on Banking Supervision (BCBS), a global committee of banking supervisors and central banks, has proposed new requirements for banks to hold cryptocurrencies such as bitcoin (BTC). In a consultation paper released Thursday, the committee outlined preliminary proposals for the legal accounting of cryptocurrencies by banks. The paper is based on the contents of the Committee’s 2019 Discussion Paper and the responses received from various stakeholders and representatives of the international industry. The perceived volatility of cryptocurrencies and their potential for illicit use prompted the BCBS to recommend a 1 250% risk weighting for bitcoin. In essence, this means that banks must have a dollar of capital for every dollar of risk on bitcoin. According to the paper, this will ensure that there is sufficient capital to fully amortize the risks associated with crypto assets without exposing depositors and other senior creditors of banks to losses. The BCBS has proposed to classify crypto assets into two broad categories: Assets that can be treated under the Basel framework with some changes, and assets like Bitcoin (BTC) that fall under the new conservative prudential regime. Source: Bank for International Settlements Related: Global banking regulator plans consultation on impact of cryptocurrencies The first category includes both traditional tokenized assets and crypto assets with effective stabilization mechanisms, i.e. Stabelcoins. The second group includes bitcoin and other assets that do not meet any of the conditions of the classification, such as. B. The use of a stabilizing mechanism. The BCBS noted that a high risk weight of 1.250% would result in a conservative outcome for direct exposures to crypto assets. However, in the case of derivatives of cryptocurrencies, care must be taken when determining the value in the formula to ensure that the result is also conservative, the committee said.While some banks are choosing to ignore Bitcoin, other financial institutions are not so quick to dismiss the crypto-currency. The Basel Committee on Banking Supervision has announced new guidelines for bank capital that includes cryptocurrencies.. Read more about the need to regulate bank capital and let us know what you think.
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