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Banks will face tough capital requirements to hold Bitcoin

banks-will-face-tough-capital-requirements-to-hold-bitcoin

Banks will have to endure tough capital requirements if they wish to hold Bitcoin and other cryptocurrencies.

Banks will need a huge capital to hold bitcoins

The Basel Committee on Banking Supervision has revealed earlier today that banks would face strict requirements if they desire to hold Bitcoin and other cryptocurrency assets. This comes as more traditional banks and financial institutions globally are making moves into the crypto market.

According to the committee, banks will need to satisfy huge capital requirements if they are to hold Bitcoin or other cryptocurrencies. The global banking regulator said it put this in place to ensure that the banks can cover any losses on Bitcoin in full.

The panel proposed that there should be a 1,250% risk weight attached to a bank’s exposure to Bitcoin and other digital currencies. This implies that a bank must hold a dollar in capital for every dollar worth of BTC, based on an 8% minimum capital requirement.

In the report, the Basel Committee, which includes the European Central Bank and the Federal Reserve, said, “The growth of cryptoassets and related services has the potential to raise financial stability concerns and increase risks faced by banks. The capital will be sufficient to absorb a full write-off of the cryptoasset exposures without exposing depositors and other senior creditors of the banks to a loss.”

Stablecoins don’t have a high capital requirement

The committee said the high capital requirement doesn’t apply to digital assets like stablecoins since their values are tied to real-world assets and currencies. They added that the regulation needs to be put in place because the banking sector faces increased risks from cryptocurrencies due to their potential for money laundering, volatile prices and reputational challenges that could result in defaults.

The proposal is now open to public comments before it is implemented. The committee said the policies would undergo changes several times as the cryptocurrency market continues to evolve.

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