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Cryptocurrency : banks that hold bitcoin must have capital to cover losses

The Basel Committee on Banking Supervision, a forum that brings together banking watchdogs from around the world – such as the Fed or the ECB – asked financial institutions to have enough reserve capital to cover losses in any bitcoin holdings in its entirety.

The regulatory body proposed this capital requirement for cryptocurrencies held by banks in his first rule tailored for the nascent sector.

The information emerges from a document published on March 13, 2020, which he called: “Designing a prudential treatment for cryptocurrencies.” This document compiles information from a questionnaire that was circulated on December 13, 2019.

The document expresses on its page 11, under the statement: “Treatment of liquidity risk”, the following: “crypto assets would be subject to a stable financing required at 100%.”

On this work paper, the regulatory entity again opened a public consultation on June 10, 2021 and hopes that the answers on the matter will be recorded before the September 10 this year on their website.

In the press release that the Basel Committee prepared to call for this presentation of proposals, divides cryptocurrencies into two large groupsThose that can be treated under the existing Basel framework with some modifications, including stablecoins and tokenized financial assets, and those that have special treatment for being considered “higher risk crypto assets,” including bitcoin.

While banks’ exposures to cryptocurrencies are currently limited, continued growth and innovation in cryptocurrencies and related services, coupled with increased interest from some banks, could increase global financial stability concerns and risks for the banking system in the absence of a specific prudential treatment.

Basel Committee on Banking Supervision.

Basel Committee says cryptocurrencies would be subject to 100% required stable funding. Source: Wikipedia.

More and more banks want to incorporate cryptocurrency custody services, for example, the US Bank. This is the fifth largest bank in the United States and it intends to add this service for its clients, as reported by CriptoNoticias.

Cryptocurrencies may become essential for the banking sector

The Basel Committee received on March 13, 2020, the written comments stakeholders. The comments, in PDF format, were posted on their website.

For example, the bank BBVA answered the question “What benefits do cryptocurrencies provide for the banking system and the provision of financial services in general?”

According to the aforementioned financial entity, given these potential benefits, cryptocurrencies could become essential for the banking sector. Therefore, it is important to avoid imposing an overly burdensome framework on banks’ exposures to these assets from the outset.

The Canadian Association of Banks agreed with BBVA in saying that it has been identified that lCryptocurrencies and their underlying technologies offer benefits to facilitate peer-to-peer interactions and promoting efficiency.

Lastly, the Japanese Bankers Association (JBA) noted that high-risk cryptocurrencies should be subject to conservative prudential treatment at this juncture. The JBA recognizes that skepticism remains about the value of cryptocurrencies and their sustainability, in particular towards those types of cryptocurrencies that have no intrinsic value.

However, the JBA believes that such conservative treatment, including the definition of high-risk cryptocurrencies should be provisional if it is going to be incorporated into the prudential regulations. For this association, although the sustainability of the value of crypto assets is uncertain, it is also a fact that there is an observed value traded in the market; For this reason, the JBA says that it cannot deny that, in the future, the value of crypto assets will stabilize and sustain itself in a sustainable way.

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