Basel Committee finalizes policy suggesting a 2% Bitcoin exposure cap for banks

The BIS’ Basel Committee introduced a finalized proposal for limits to the amount of Tier 1 capital banks can hold in bitcoin.Author:BtcCaseyPublish date:Dec 16, 2022The BIS’ Basel Committee introduced a finalized proposal for limits to the amount of Tier 1 capital banks can hold in bitcoin.The Bank for International Settlements’ (BIS) Basel Committee on Banking Supervision has finalized a proposed policy that would place a 2% limit on banks’ Tier 1 capital held in bitcoin. This proposal has been approved by the Group of Central Bank Governors and Heads of Supervision, the oversight body of Basel Committee. It is the “primary global standard-setting body for prudential bank regulation.” “Investopedia defines Tier 1 Capital as “the core capital in a bank’s reserves that is used to fund the bank’s clients’ business activities.” It includes common stock as well as disclosed reserves. The policy includes bitcoin in the definition of Group 2 crypto assets. It states that, “In addition to tokenised traditional assets or stablecoins that fail to meet the classification conditions, Group 2 also includes all unbacked cryptoassets.” Later, it stated that a bank’s exposure to Group 2 cryptoassets must not be greater than 1% of its Tier 1 capital. It should not exceed 2%. “The BIS had previously considered a policy 1% for global banks. The banks demanded a 5% reserve limit. The compromise reached between the banks and the banks appears to have been 2%. Data from 2020 shows that if this limit is applied to all global banks, which collectively hold approximately $180 trillion in bitcoin, it would result in a limit of $3.6 billion in bitcoin owned by such entities. Tiff Macklem (chair of the GHOS) stated that “Today’s endorsement by GHOS marks a significant milestone in the development of a global regulatory base for mitigating the risks to banks from cryptocurrencyassets.” It is important that we continue to monitor developments in cryptoasset markets affecting banks. We are ready to take further action if necessary. “Tagsterms:RegulationBitcoin Reservebanks

 

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