Basel Committee Proposes Highest Risk Weightage for Bitcoin

The Basel Committee on Banking Supervision that comprises 45 members from 28 jurisdictions today proposed two sets of regulations for the crypto assets. The new proposals give a conservative prudential treatment to crypto-assets such as Bitcoin without any real-world backing citing high-risk factors.

The proposal divided the crypto assets into two broad categories first being stablecoins and real-world backed security tokens that might fall under the existing Basel Framework with some modifications. On the other hand crypto assets such as bitcoin, are subject to a new conservative prudential treatment. The committee has opened suggestions on the proposal until September 10.

The Committee proposed that banks assign a risk weighting of 1,250 percent to bitcoin and certain other cryptocurrencies. This means banks may need to hold actual dollars for every dollar of bitcoin.

The risk weightage would range from 0% to 1,250% depending on the type of assets. The official press release read,

“The capital will be sufficient to absorb a full write-off of the crypto-asset exposures without exposing depositors and other senior creditors of the banks to a loss,”

How would Conservative Approach by Basel Committee Impact Bitcoin?

The high-risk weightage for Bitcoin might seem conservative but on the bright side, this proposal recognizes bitcoin as an asset class by the world’s largest regulatory committee of banks. It is also important to note that the proposal is in the preliminary stage and has invited suggestions.

The official proposal also noted that despite the limited use of crypto assets in the banking sector it is a rapidly growing ecosystem that could pose a risk to the financial stability of the banking sector. The proposal by the Banking Supervision Committee comes on the heels of El Salvador passing a bill to make Bitcoin a legal tender in the country.

About Author

An engineering graduate, Prashant focuses on UK and Indian markets. As a crypto-journalist, his interests lie in blockchain technology adoption across emerging economies.