Basel Committee Calls for Updated Crypto Banking Rules
The Basel Committee’s Chair, Pablo Hernández de Cos, warned that current global banking rules on cryptocurrency exposure need urgent revision. The existing framework, finalized in 2022, no longer fits the fast-changing crypto market. He stressed that the rise in institutional digital asset adoption requires a careful reassessment to balance risk and opportunity.
Current rules demand banks hold capital buffers up to 1,250% for unbacked crypto holdings, much higher than the 100% required for traditional equities. This measure was designed to prevent collapses like those of FTX and Three Arrows Capital in 2022. However, de Cos, a former Governor of Spain’s central bank, said these rules might now be too strict. He noted that stablecoins and tokenized assets are becoming common in payments, but the regulations have not fully adapted.
He suggested future changes might lower capital requirements for “Group 1” assets, which operate like regular money. He also called for clearer custody rules. De Cos emphasized that updates should protect the financial system without blocking innovation.
Banking Industry and Regulatory Responses
The Basel Committee’s 2021 framework, set to take effect next year, has faced criticism for being too harsh on digital assets. Some banks, including JPMorgan Chase, argue that high capital requirements hinder investment in crypto infrastructure.
A senior US bank executive compared the rules to “putting a Ferrari in a parking lot,” meaning the potential is strong but access is limited. The Basel Committee operates under the Bank for International Settlements and will consider global regulators’ feedback in any review.
Global Regulatory Landscape and US Oversight
Regulatory approaches differ worldwide. In the US, the Trump administration plans relaxed rules for stablecoins and aims to ease banks’ access to crypto markets. Meanwhile, the European Union’s MiCA rules impose strict licensing and reserve requirements, with the UK considering similar measures.
These differences present challenges for the Basel Committee in balancing innovation and financial stability. The development of central bank digital currencies adds further complexity to regulation.
In Washington, Michael Selig, nominated to lead the Commodity Futures Trading Commission (CFTC), emphasized the need for clear guidelines and consumer protection during Senate hearings. He warned against regulation by enforcement and highlighted the opportunity to foster innovation in crypto exchanges and software development.
Selig’s appointment follows the withdrawal of Brian Quintenz and reflects ongoing scrutiny of regulatory strategy and potential conflicts of interest in the industry.
The Basel Committee’s upcoming review could lower capital requirements for banks holding crypto assets. Experts caution that reducing these safeguards too soon might increase risks to the financial system as stablecoins and tokenized assets continue to grow.
