Just-In: Bank of International Settlements’s New Policy Allows Banks to Hold 2% in Crypto
The Prudential Treatment of Cryptoasset Exposure Report for December 2022 has been released by the Bank for International Settlements. According to the official statement, they have a new policy that allows banks to hold 2% of their cryptocurrencies reserves.
Increase in Crypto Reserves
The second consultation on prudential regulation of banks’ exposures to crypto assets in the summer concluded. The new policy, which allows banks to hold 2% of their cryptocurrencies reserves, has been drafted.
The policy covers many aspects of how cryptoassets should be defined and processed. It will go into effect January 1, 2025.
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The BIS announced earlier in June that crypto assets would be added to reserves. This meant that banks could not hold more than 1% of their cryptocurrency reserves.
Official announcement segregates cryptocurrency under two groups: Group 1 and 2. Both tokenized traditional assets and digital “with effective stabilization mechanism” are included in the first category. Digital assets that fail to meet any of these classification conditions are classified as Group 2 assets.
Bank of International Settlement’s Crypto Push
The document also states that banks’ exposures to Group 2 assets should not exceed 2 percent of their Tier 1 capital. This criterion is specifically mentioned in the report’s reserves section. This new development will allow financial institutions to explore cryptocurrencies and grow their reserves.
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The report also includes information about the risks and supervision of these assets.
The supervisory pre-approval component has been removed from the required process. Instead, banks must notify supervisors about classification decisions in the final standard. Supervisors will be able to override these decisions if they disagree.
A dismal year for crypto
The crypto market has seen a low level of traction this year. Many crypto firms have either closed down or are in the process of declaring bankruptcy.
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The collapse of FTX signaled a downward trend in a number digital assets. The U.S. Federal Reserve’s recent rate increase announcement was the final nail in the coffin. This news is a welcome relief to the crypto market.
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