Basel crypto rules: largest banks can have $20bn combined engagement

Regulation MARKET_WATCH

The second crypto-asset consultation by the Basel Committee for Banking Supervision closed at the end of September and it published the feedback received. One of the proposed rules limits the amount of bank cryptocurrency exposures to 1% of Tier 1 bank capital. Some of the feedback concluded that means that most of the world’s largest banks can have a combined $20 billion exposure to crypto-assets. 

 

The four most restrictive proposed Basel rules

 

There’s a lot of detail in the proposed Basel rules, but the four most significant issues are:

Cryptocurrency exposures require a dollar-for-dollar set aside of tier 1 capital by banks

  1. Total cryptocurrency exposures are limited to 1% of Tier 1 capital
  2. DLT use for traditional assets attracts a 2.5% surcharge
  3. Cryptocurrency custody also has a dollar-for-dollar capital requirement.

We previously summarized the joint feedback from major trade associations.

Cryptocurrency exposure limit

 

The combined Tier 1 capital of 21 of the 30 globally systemically important banks (G-SIBs) – excluding nine banks in China, Japan and Switzerland – totals $2 trillion, limiting their combined Group 2 crypto-asset (crytocurrencies) exposure to $20 billion. The crypto market is currently worth more than $950 billion. So together, the banks could have a maximum exposure of 2% to the whole cryptocurrency market.

 

The CME made a similar calculation, concluding that all its CME Clearing bank member firms could have a combined exposure of $20 billion.

Group 2 crypto-assets have a 1250% risk weighting, which means that banks have to set aside a dollar of capital for every dollar of cryptocurrency exposure. Although some hedging is now accounted for (up to 65%), in the absence of a cap, this would already disincentivize bank exposures.

 

Societe Generale observed that this “risks cementing control of these markets to non-banking players through excessively burdensome requirements.”

 

The World Federation of Exchanges and the Deutsche Börse had similar sentiments. “The proposed methodology has no precedent in financial market regulation when comparing it to other economically more volatile and less predictable asset classes (such as other complex financial instruments),” wrote the Deutsche Börse. “Exposure limits on individual asset classes for banks have to the best of our knowledge not even been proposed during the 2008 global financial crisis.”

 

A few large crypto exchanges also provided responses and they too objected to the cap, despite banks potentially being competition. Institutional adoption is viewed by many as a critical path to crypto-assets becoming mainstream.

 

 

 

 Source : news.google.com/__i/rss/rd/articles/CBMiUGh0dHBzOi8vd3d3LmxlZGdlcmluc2lnaHRzLmNvbS9iYXNlbC1jcnlwdG8tcnVsZXMtYmFua3MtMjBibi1jb21iaW5lZC1leHBvc3VyZXMv0gEA?oc=5 undefined - October 24, 2022

Join our 60k+
tribe of Akters

Have any questions?

We're here to help.

Learn more

About the AKTIO coin

AKTIO is now live!

Learn more about the AKTIO coin

What’s new in the App?

We’re adding new features

Find out more about the App

Customer support

support@akt.io

+353 1 574 7382

Opening hours:

Monday to Friday: 9am - 5pm CET

Company

About

AKTIO coin

Careers

Learn

Blog

News

Glossary

AKT Academy

Help

FAQ

Sitemap

System Status

Follow our latest news

Automata Pay

65-66 Warwick House 4th

Floor, Queen Street, London

England, EC4R 1EB

Automata ICO Ltd

3rd Floor Ormond Building,

31-36 Ormond Quay Upper,

Dublin 7, D07 Ee37

Automata Pay Europe Ltd

3rd Floor Ormond Building,

31-36 Ormond Quay Upper,

Dublin 7, D07 Ee37

Automata Pay Ltd, Reg number 12208424 and incorporated in the United Kingdom is the registered agent of Modulr FS Limited, a company registered in England with company number 09897919, authorised and regulated by the Financial Conduct Authority as an Electronic Money Institution (Firm Reference Number: 900573). Traditional currency will be safeguarded by a licensed bank in segregated accounts in accordance with regulatory requirements.

Automata Pay Europe Limited, Reg number 69028 and incorporated in Ireland is the registered agent of Modulr FS Europe Limited, a company registered in Ireland with company number 638002, authorised and regulated by the Central Bank of Ireland as an Electronic Money Institution (Institution Code C191242). Traditional currency is safeguarded as e-money in accordance with our regulatory obligations. Traditional currency will be safeguarded by a licensed bank in segregated accounts in accordance with regulatory requirements.

Automata ICO Limited, Reg number 690280 and incorporated in Ireland has applied for a Virtual Asset Service Provider registration with the Central Bank of Ireland. Whilst the application is ongoing we are permitted to continue business as a Virtual Asset Service Provider in line with the Central Bank of Ireland's regulatory disclosure statement as required under section 106L of the CJA 2010 in relation to registered VASPS. It is important to note that a registration as a VASP is a registration for Anti-Money Laundering (AML) and Combatting the Financing of Terrorism (CFT) purposes only. While Automata ICO Limited does have certain financial crime control obligations under this registration, cryptoasset services remain largely unregulated. The Financial Ombudsman Service or the Financial Services Compensation Scheme do not apply to the cryptoasset activities carried on by Automata ICO Limited.