The Basel Committee on Banking Supervision (BCBS) proposes in a new document for that banks are allowed to put 1% of their reserves in crypto such as bitcoin (BTC). The committee also came up with a proposal last year, but that proposal was met with fierce opposition in the crypto sector at the time. Now the committee seems to be loosening up a bit when it comes to the ownership of certain crypto by banks.
Bank not happy with previous crypto standards
The BCBS is an international committee for banking supervisors. The body is located in the office of the Bank of International Settlements (BIS) in Basel, Switzerland, but is a separate entity with its own board. The standards it sets are usually adopted by the banking world.
Last year it was already read that the BCBS divides capital into two groups; Tier 1 capital, which includes tokenized assets, fully backed stablecoins and the bank’s core reserves, and Tier 2 capital which includes cryptocurrencies that have no underlying reserve such as bitcoin.
At the time, the proposed standards were therefore subject to criticism. And that criticism did not only come from crypto companies, traditional banks were also not happy. It was mainly the requirement that banks had to set aside a lot of reserve if they wanted to include bitcoin in their reserves. For example, if Deutsche Bank wants to buy $100 worth of bitcoin, it would have to set aside $100 for it as hedging.
Bank allowed to invest 1% in bitcoin
The BCBS now proposes that banks may now own crypto such as bitcoin, provided it is not worth more than 1% of group 1 assets. This concerns cryptocurrencies that are also included in a derivative product such as a exchange traded fund (ETF). This is how banks can increase their exposure “hedge.”
1% doesn’t sound very great you would think. But 1% of the reserves of banks like Deutsche Bank quickly account for billions of euros in exposure. Of course, this does not mean that banks will immediately stock up on crypto. It is a step in the right direction!