The Basel Committee convened on July 2-3 and deliberated on policy matters, including the disclosure of banks’ exposure to cryptocurrencies. These decisions form part of the Basel III reforms initiated in 2019 to strengthen the resilience of European Union banks through regulatory measures, supervision, and risk management.
A proposal for a disclosure framework for banks’ crypto assets was first introduced in December 2022 and opened for public feedback in May 2023. The framework encompasses a series of targeted revisions to the original proposal and adjustments to the prudential standard for stablecoin holdings.
The primary goal of disclosure is to increase transparency and promote market discipline. An updated set of standards is scheduled to be released later in July, as stated by the Bank for International Settlements (BIS).
The committee’s examination of banks’ crypto exposure traces back to 2019. In 2021, it recommended including crypto assets in the high-risk Group 2 category. This would entail a 1,250% risk weight, necessitating banks to hold capital equivalent to the value of their crypto exposure. Holdings in Group 2 were restricted to less than 1% of the value of their Group 1 holdings.
Stablecoins were allocated a new designation of 1b, imposing no additional requirements on banks’ holdings beyond those for Group 1. However, stablecoins with “ineffective stabilisation mechanisms” were placed in Group 2, sparking a lukewarm response from the industry.
In December, the committee proposed the introduction of a maximum maturity limit for banks’ reserve assets and overcollateralization of stablecoin holdings to mitigate the risk of depegging.
Furthermore, the committee deliberated on the prudential implications of banks issuing stablecoins and concluded that “these risks are broadly captured by the Basel Framework,” with continued monitoring of the area.
In addition to the new Basel standards, stablecoin issuers must adhere to the new regulations under the Markets in Crypto-Assets (MiCA). The Basel Committee on Banking Supervision is hosted and supported by the BIS, with its governance and agenda guided by the central banks of the Group of 10 countries. Changes to the current Basel III standards will come into effect on January 1, 2026, after being postponed from January 1, 2025.
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