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The Basel Committee convened on July 2-3 and made significant policy decisions, including new regulations regarding banks’ exposure to cryptocurrencies. These decisions are part of the broader Basel III reforms, initiated in 2019, aimed at enhancing the resilience of European Union banks through improved regulation, supervision, and risk management.
In December 2022, the Basel Committee proposed a disclosure framework for banks’ crypto assets, which was subsequently opened for public comments in May 2023. The framework includes targeted amendments to the original proposal and revisions to the prudential standards for stablecoin holdings.
A Path to Regulation
The disclosure framework aims to enhance transparency and promote market discipline among banks. According to a statement from the Bank for International Settlements (BIS), the updated standards will be published later in July.
The committee’s consideration of banks’ crypto exposure dates back to 2019. In 2021, it proposed classifying cryptocurrencies in its high-risk Group 2 asset category, assigning a 1,250% risk weight to crypto assets. This means banks would need to hold capital equal to the value of their crypto exposure. Group 2 holdings were also restricted to less than 1% of the value of their Group 1 holdings.
Stablecoins were given a new designation, 1b, which did not impose additional requirements on banks’ holdings beyond those for Group 1. However, stablecoins with “ineffective stabilization mechanisms” were placed in Group 2, facing stricter requirements. The industry’s response to these proposed restrictions was largely unenthusiastic.
In December, the committee suggested introducing a maximum maturity limit for banks’ reserve assets and requiring over-collateralization of stablecoin holdings to mitigate the risk of depegging.
Basel and MiCA Regulations
Additionally, the committee discussed the prudential implications of banks issuing stablecoins, concluding that these risks are broadly captured by the Basel Framework. However, the committee will continue to monitor this area closely.
In tandem with the new Basel standards, stablecoin issuers must also comply with the new Markets in Crypto-Assets (MiCA) regulations.
The Basel Committee on Banking Supervision is hosted and supported by the BIS, with its governance and agenda guided by the central banks of the Group of 10 countries. The changes to the current Basel III standards will take effect on January 1, 2026, after being postponed from the original date of January 1, 2025.
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