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Global banking regulator to step closer to crypto capital rules


Recently, the global banking watchdog stated that the Basel Committee on Banking Supervision will consult on how lenders should shield themselves from crypto assets. The move comes as regulators turn up the heat on a growing but risky investment in the cryptocurrency sector. It is no news that cryptocurrency has been soaring since last year and investors are in awe of the profitable yet risky investment. The crypto-assets sector has been reportedly growing rapidly but bitcoin has cooled in the recent months. The bitcoin cooled from a high of $64,895.22 in mid-April to $36,005 on Monday after China signaled a stringent crackdown on crypto mining.

The Swiss based watchdog stated in a statement that “The committee agreed to publish a consultation paper to seek the views of external stakeholders on the design of prudential treatment of banks’ exposures to crypto assets,”.

According to reports, Prudential rules force banks to assign “risk weightings” to each type of assets namely loans or derivatives. The ‘risk weightage’ is  then added up to determine how much capital should be held.

The committee stated that it had a discussion on the crypto-assets last Friday. The committee is made up of regulators from the world’s main financial centers.

In its statement, it stated that “While banks’ exposures to crypto assets are currently limited, the continued growth and innovation in crypto assets and related services, coupled with the heightened interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment,”.

Last month, HSBC, Europe’s biggest bank, told Reuters that it had no plans to join rival lenders such as Goldman Sachs in launching a cryptocurrency trading desk. It additionally maintained that, it wasn’t interested in offering the digital coins too as the currency is too volatile and lack transparency. It marks it out against rivals such as Goldman Sachs, which Reuters in March reported had restarted its cryptocurrency trading desk, and UBS which other media said was exploring ways to offer the currencies as an investment product.

It is to be noted cryptocurrency lacks transparency due its blockchain technology and is volatile as it is decentralized and doesn’t have central control over it. The Bank of England has pessimistically maintained that  investors should be prepared to lose all of their money if they invest in crypto assets.

It is to be noted that Europe’s largest bank’s stance on cryptocurrencies came at a time when the world’s biggest and best-known, bitcoin, had tumbled nearly 50 per cent from the year’s high, after China cracked down on mining.

Referring to digital currencies such as Tether that seek to avoid the volatility typically associated with cryptocurrencies by pegging their value to assets such as the US dollar. Quinn stated that  “Given the volatility, we are not into bitcoin as an asset class. If our clients want to be there, then of course they are, but we are not promoting it as an asset class within our wealth management business,”. Quinn added that “For similar reasons we’re not rushing into stable coins,”.

About the author

Shivani Khanna

A woman who believes in equal rights and aspires to inspire people through her writings. I aspire to contribute to the economic world and society with diligence and thus being an economic advisor tops my career ambitions . I currently am pursuing Economic honours ( at undergrad level) from delhi university.

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