The financial situation for Banks that have their eye on crypto may have just taken a sharp turn, as the Swiss financial committee says banks should set aside money to protect investors from losses incurred in cryptocurrency holdings.
Banks ‘Under Siege’
A committee centered in Basel, made up of a group of financial watchdogs globally, has formulated an interesting set of regulations. The group says banks should be ready to cover any loss related to holding cryptocurrency.
A spokesperson for the Basel committee said that Banks are at a higher risk than any other institution holding crypto. The spokesperson shed light on the ‘red flags’ that holding BTC comes with, including money laundering. They further explained their views saying,
“The growth of crypto-assets and related services has the potential to raise financial stability concerns and increase risks faced by banks………… 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.”
Institutions Adopting Cryptocurrencies
El Salvador’s move to take up BTC as a legal tender has caused ripples across the global financial scene. The country’s passed bill has instructed the Development Bank of El Salvador to convert bitcoin to USD services instantly. Since people are allowed to use BTC in payments, it’s only reasonable for banks to start holding bitcoin.
The Swiss-based committee acknowledges that Banks have limited exposure to digital currencies, but they suggest their growing population could raise financial risks beyond containment.
*BITCOIN PUT IN HIGHEST RISK CATEGORY IN BANK CAPITAL PROPOSAL
— *Walter Bloomberg (@DeItaone) June 10, 2021
The group of financial regulators proposes banks should weigh risks and enact capital requirements for holding cryptocurrencies. According to their suggested numbers, these ‘risk weights’ should linger around 1.250%, in that the capital of banks should exceed what they have to pay if anything takes a turn for the worse by the percentage mentioned earlier.
Turmoil Among Financial Regulators
Financial institutions are having a difficult time classifying cryptos as an asset class, which is why the Basel committee views them as risks. Assets, according to them, do not necessarily require the exact capital requirements as cryptocurrencies do.
Earlier this week, one of the commissioners at the US Securities and Exchanges Commission, shared her opinion on crypto regulation in the country, saying strict rules will give investors a run for their money.
Hester Pierce is urging financial regulators to find a way to embrace crypto rather than trying to limit its use. Her remarks suggest financial watchdogs have different opinions on cryptocurrency adoption.