One of the world’s foremost financial regulatory bodies has its eyes on the cryptocurrency market. More specifically, the Basel Committee on Banking Supervision would like to see institutions adopting a more “conservative” approach to digital assets investing – preferably in the form of capital rules.
The group – made up of financial authorities from the world’s leading finance hubs – believes that embracing their suggested “twin approach” to capital controls would mitigate against the potential downside of major lender’s widespread use of digital assets.
The Swiss based group suggests digital assets being split into two broad groups, the first being fiat pegged stable coins and tokenized assets, and the second group being digital assets like Bitcoin and Ethereum – which the group sees as having “unique risks”.
Under the BCBS’ suggested regulatory regime, the first group would have to fall in line with the existing rules that govern deposits, loans, bonds, equities and commodities.
As for the second group – which isn’t tied to any underlying asset – banks would have to hold capital that matches their crypto exposure 1:1 under Basel’s proposed rules.
“The capital will be sufficient to absorb a full write-off of the crypto asset exposures without exposing depositors and other senior creditors of the banks to a loss,” the group suggested.
Legitimate Reasoning Maybe?
The reasoning behind the Basel committee’s suggestions is that the currently limited exposure to the growing sector has the potential to disturb global financial stability if it is not properly regulated.
This comes on the back of China and the US both looking to take a stricter stance on digital assets.
