The Basel Committee convened from July 2-3 and made decisions on various policy matters, including the disclosure of banks’ exposure to cryptocurrency. These decisions are part of the ongoing Basel III reforms, which were initiated in 2019 to strengthen the resilience of European Union banks through regulatory measures, supervision, and risk management.
In December 2022, a framework for the disclosure of banks’ crypto assets was proposed, and in May 2023, it was opened for comments. This framework includes a series of targeted amendments to the original proposal and revisions to the prudential standard for stablecoin holdings.
The primary goal of disclosure is to increase transparency and promote market discipline. The Bank for International Settlements (BIS) announced that updated standards will be released later in July.
The committee has been examining banks’ exposure to cryptocurrency since 2019. In 2021, it suggested placing crypto in the high-risk Group 2 category of assets. This would require a 1,250% risk weight, meaning that banks would need to hold capital equivalent to the value of their crypto exposure. Furthermore, holdings in Group 2 were limited to under 1% of the value of their Group 1 holdings.
Stablecoins were given a new designation of 1b, which did not impose additional requirements on banks’ holdings beyond those for Group 1. However, stablecoins with “ineffective stabilization mechanisms” were placed in Group 2, a move that was met with little enthusiasm from the industry.
In December, the committee proposed introducing a maximum maturity limit for banks’ reserve assets and overcollateralizing stablecoin holdings to offset potential depegging.
Additionally, the committee discussed the prudential implications of banks issuing stablecoins and concluded that “these risks are broadly captured by the Basel Framework,” but they will continue to monitor this area.
In addition to the new Basel standards, stablecoin issuers must comply with the new regulations under the Markets in Crypto-Assets (MiCA). The Basel Committee on Banking Supervision is hosted and supported by the BIS, with its governance and agenda guided by the central banks of the Group of 10 countries. Changes to the current Basel III standards will come into effect on January 1, 2026, after being postponed from January 1, 2025.