Banks Afraid Of the Risks Associated With Crypto Assets Call for Regulation

Banks Afraid Of the Risks of Crypto Assets Call for Regulation

The global banking system is really in a limbo when it comes to cryptocurrencies. With the volatility at an all time high the banks are now really concerned about cryptos risks. These concerns have led them to call for regulations on crypto. 

The Basel Committee on Banking Supervision held this year created a proposal for regulations in crypto. The committee had a consultation session where the proposal was agreed upon. The BCBS proposes a difference in the characterization of the crypto assets, especially stable coins

High Risk Weightage

The characterization would be based upon the underlying assets and would be considered in the same manner as traditional assets. The stablecoin will have an underlying asset with a less risk profile. A crypto asset that would have no stabilization mechanism would have a higher risk weight. 

The higher risk weight would be given to payment coins. Especially Bitcoin and Ethereum. The stable coins will also have a higher degree of assessment with the banks monitoring the value of the underlying assets. Therefore, reevaluating the stabilization mechanism. 

Low Exposure Levels

The BCBS has ruled that the current level of association of banks with crypto is less. However, with increasing development in crypto the banks would need to have exposure. It would become challenging for banks to hedge their risks.

Based on these guidelines it would become really hard for banks to put crypto on their balance sheets. The proposal would help in reducing the impact by a lot. 

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