Social standards restricting banks' exposure to cryptocurrency assets will be finished this year while taking into account the recent market volatility as justification for proceeding with the contentious proposals.
On May 27, the Basel Committee on Banking Supervision (BCBS) met and discussed the importance of crypto and made some progress on its second consultative paper regarding the "prudential treatment of banks' cryptoasset exposures." The committee added:
"The committee plans to publish another consultation paper over the coming month, with a view to finalizing the prudential treatment around the end of this year."
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Last year, the body issued its first consultation paper, implying severe capital requirements for banks with cryptocurrency exposure. In addition, the document will extend the current framework to crypto and give guidelines to address any loopholes.
On top of that, BCBS suggested two classifications of crypto-related assets. For instance, stablecoins and traditional assets that are represented on the blockchain would establish one group, whereas other assets with a 1,250% risk weight would form the second group. This means that a bank must hold $1 in fiat money for every $1 worth of crypto it stored.
However, this was met with strong opposition from banking institutions such as JPMorgan Chase (JPM) and Deutsche Bank (DB) which saw this as an unreasonably demanding requirement.
Earlier this month, New York-based multinational investment bank JPMorgan Chase & Co stated that it would use its own blockchain for collateral settlements. This will eventually allow its traders to submit a number of assets as collateral that may be used beyond the usual market hours.
Moreover, the committee also published the following remark in a press release on May 24 to possibly share thoughts on Terra's ecosystem as it suffered from a massive collapse:
“Recent developments have further highlighted the importance of having a global minimum prudential framework to mitigate risks from cryptoassets.”
BCBS also highlighted the importance of climate-related financial risks, as well as the weaknesses of the international banking system amid Russia’s aggression against Ukraine, and the management of cross-border vulnerabilities within the European Banking Union.
