- The Basel Committee has proposed new rules to limit the risks associated with cryptocurrencies.
- The proposal stipulated that banks should back their holdings of digital assets with the equivalent amount of cash.
- Big banks, including JPMorgan Chase & Co., opposed the rules, saying they are too “conservative and simplistic.”
Several of the largest banks in the United States and Europe have opposed the cryptocurrency rules set by the Basel Committee on Banking Supervision. The guidelines would initially require banks to set aside capital for every dollar of Bitcoin they hold.
The best banks want not to be excluded from cryptocurrencies
The Basel Committee on Banking Supervision, a group within the Bank for International Settlements, said earlier in June that global banks exposed to Bitcoin would have to set aside one dollar for every dollar of crypto they hold to fully cover losses.
The strict rule was intended to limit the risks associated with the high degree of volatility that cryptocurrencies present. Popular digital assets, including Bitcoin and Ethereum, have been classified as “high risk” and the rules have proposed that banks keep 1250% of the value of their cryptocurrency holdings in cash or cash equivalents.
These capital requirements would deprive banks of their participation, although the demand for digital assets from their clients continues to grow. Initially, if the rules were enforced, the Basel Committee would classify cryptocurrencies into two groups, tokens that look like securities or fully backed stablecoins. Banks that have stablecoins must be backed by cash.
The Global Financial Markets Association, a forum for banks that includes JPMorgan Chase & Co. and Deutsche Bank AG, along with five other associations, including the Financial Services Forum and the Digital Chamber of Commerce, rolled back the new rules in a letter in September. 21. The group emphasized that Bitcoin and other popular cryptocurrencies should not face such strict capital requirements.
Banking regulators around the world are increasingly concerned about the role cryptocurrencies play in money laundering and terrorist financing. The business associations further added that the new rules are counterproductive since they would prevent financial companies from owning digital assets, which would be forced to enter the unregulated part of the financial system.
The associations said the proposals are “too conservative and simplistic” and also unnecessary for Bitcoin and other highly traded digital assets.
On the other hand, stablecoins also experience very narrow price fluctuations, which would not risk falling under the same capital requirements that apply to Bitcoin and altcoins.