Basel Committee proposes strict capital requirements for banks with bitcoin exposure

The Basel Committee for Banking Supervision, the global standards body for bank regulation, published a consultation on Thursday that, if ultimately put into effect, would impose strict capital requirements for banks that have exposure to bitcoin and other cryptocurrencies.

It's a notable release, given that major banks around the world pursue custodial services in response to demand from their clients and customers. But the consultation — which has a September response date attached — signals that the world's banking regulators intend to take a conservative approach to oversight, requiring that banks hold enough capital to cover the entirety of potential losses. 

The paper outlines two areas. One group includes tokenized assets and stablecoins, with another encompassing bitcoin and others. It's the latter group, as shown in the chart below, that would carry with it the strict capital requirements due to the perceived risks.

The Basel Committee first indicated that it wanted to bring forward prudential rules for crypto assets in late 2019. That December, the group published a discussion paper, declaring at the time that the growth of cryptocurrencies could pose risks to financial stability and banks. A “conservative prudential” treatment to cryptocurrency exposure should therefore be put in place for banks, per the paper.

In the consultation paper's introduction, the Committee noted that the proposals would constitute a "minimum," opening the door to even tighter requirements at the discretion of banks themselves.

"Any Committee-specified prudential treatment of cryptoassets would constitute a minimum standard for internationally active banks. Jurisdictions would be free to apply additional and/or more conservative measures if warranted. As such, jurisdictions that prohibit their banks from having any exposures to cryptoassets would be deemed compliant with a global prudential standard," the group said. 

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