Global regulators have said cryptocurrencies such as bitcoin should come with the toughest bank capital rules to avoid putting the wider financial system at risk should their value collapse suddenly.
The Basel Committee on Banking Supervision, which consists of regulators from the world’s leading financial centres, is proposing a “new conservative prudential treatment” for crypto-assets that would force banks to put aside enough capital to cover 100% of potential losses.
That would be the highest capital requirement of any asset, illustrating that cryptocurrencies and related investments are seen as far more risky and volatile than conventional stocks or bonds.
“Crypto-assets have given rise to a range of concerns including consumer protection, money laundering and terrorist financing, and their carbon footprint,” the Basel Committee said. While most regulated banks currently have limited exposure to cryptocurrencies, the committee warned that the “growth of crypto-assets and related services has the potential to raise financial stability concerns and increase risks faced by banks”.
The world’s most powerful banking standards setter warned on Thursday that certain crypto-assets had proved to be highly volatile, meaning they could “present risks for banks as exposures increase, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering/terrorist financing risk; and legal and reputation risks”.
However, it said looser rules could apply to stablecoins – a new form of digital asset usually pegged to the value of a traditional currency – that may require only a level of capital rules applied to traditional assets such as bonds, loans, deposits, equities or commodities.