In guidelines released on Thursday that now also address blockchain, the international Basel Committee of banking regulators advised banks to adopt a cautious approach when setting aside capital to cover risks from “unbacked” digital assets on their books.
Recently, the value of cryptoassets has fallen, in part due to the collapse of terraUSD, a stablecoin whose value was determined by intricate computational procedures.
Since the crypto industry is only loosely regulated compared to the magnitude of the global stock, bond, and derivatives markets, regulators like the Basel Committee are concerned about possible dangers to the financial system.
The suggestions on Thursday are part of Basel’s second public consultation on cryptocurrencies, and they would mandate that banks reserve money for their crypto holdings cautiously.
According to the suggestion from the Committee, stablecoins that lack efficient stabilization mechanisms and cryptoassets that are not backed by assets like traditional currencies should continue to be subject to a cautious prudential treatment with regard to capital set aside for probable losses.
It also suggested a fresh cap on total exposures to these cryptoassets.
Basel launched the first consultation on the cryptocurrency industry in June of last year, proposing that banks retain enough capital to fully cover losses on any bitcoin holdings.
Basel stated that it was maintaining the fundamental framework of the initial plan, which split cryptoassets into two major categories, one of which included stablecoins and the other of which included higher-risk cryptoassets and required a more conservative capital treatment.
The most recent Basel proposals include brand-new components including additional capital to cover “changing risks” from blockchain-based distributed ledger technology, which supports cryptoassets.
The committee stated that it will keep an eye on market developments to see whether the recommendations need to be made even tougher.
The committee, which is composed of bank regulators from the major financial centers across the world, stated that it intends to finalize the guidelines by year’s end.
