Central Banks to set standards on banks’ crypto exposure

A global standard for banks’ exposure to crypto assets has been endorsed by the Group of Central Bank Governors and Heads of Supervision (GHOS) of the Bank for International Settlements (BIS). The standard, which sets a limit of 2% on crypto reserves among banks, must be implemented on January 1, 2025, according to an official announcement on Dec. 16.

The report, dubbed “Prudential treatment of cryptoasset exposures”, introduces the final standard structure for banks regarding exposure to digital assets, including tonenized traditional assets, stablecoins and unbacked cryptocurrencies, as well as feedback from stakeholders collected in a consultation launched in June. The Basel Committee on Banking Supervision noted the report will soon be incorporated as a new chapter into the consolidated Basel Framework.

BIS’s announcement highlights that the global banking system’s direct exposure to digital assets remains relatively low, but recent developments have outlined “the importance of having a strong minimum framework for internationally active banks to mitigate risks.” It also stated:

“Unbacked cryptoassets and stablecoins with ineffective stabilisation mechanisms will be subject to a conservative prudential treatment. The standard will provide a robust and prudent global regulatory framework for internationally active banks’ exposures to cryptoassets that promotes responsible innovation while preserving financial stability.”

Pablo Hernández de Cos, chair of the Basel Committee and Governor of the Bank of Spain, noted about the standard:

“The Committee’s standard on cryptoasset is a further example of our commitment, willingness and ability to act in a globally coordinated way to mitigate emerging financial stability risks. The Committee’s work programme for 2023–24 endorsed by GHOS today seeks to further strengthen the regulation, supervision and practices of banks worldwide. In particular, it focuses on emerging risks, digitalisation, climate-related financial risks and monitoring and implementing Basel III.”

The BIS disclosed in September the results of its multi-jurisdictional central bank digital currency (CBDC) pilot, following a month-long testing phase that enabled cross-border transactions worth $22 million. The pilot program involved the central banks of Hong Kong, Thailand, China, and the United Arab Emirates, as well as 20 commercial banks from those regions. According to a report by the BIS published in June, around 90% of central banks are considering the adoption of CBDCs.