Banks would face the most stringent capital requirements for holding Bitcoin, Ethereum, and certain other cryptocurrencies under a plan released by the Basel Committee for Banking Supervision, a global standard-setting body for bank capital and prudential matters.
On June 10, 2021, the Basel Committee released for public consultation a plan for the riskiest cryptoasset exposures to receive a 1,250% risk-weight under global minimum capital standards. Under these standards, banks assign "risk weightings" to each type of asset, such as corporate loans or derivatives exposures, to determine their total risk-weighted assets. The calculation is then used in determining how much capital should be held. The assignment of a 1,250% risk-weight for exposures tied to certain cryptocurrencies has been described by some in the market as "punitive" because it would effectively mandate that banks hold a dollar in capital for each dollar worth of Bitcoin (or another cryptocurrency) they own.
The proposed risk-weighting is a clear reflection of the prudential concerns surrounding the "rapid growth" of cryptocurrencies and the myriad of liquidity, credit, legal, and reputation risks they present to banks. Capital requirements, of some kind at least, appear highly likely.
