Basel Wi “Bitcoin Risk Weight Allocation of 1250%”… ‘Highest Risk Asset’ Classification


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[Blockchain Today Correspondent Lee Ji-eun] The Basel Banking Supervision Board (BCBS), the Global Banking Supervisor and Central Banking Commission, has put forward new requirements for banks that want to hold cryptocurrencies such as Bitcoin (BTC), Cointelegraph reported.

In an advisory report published on the 10th (local time), the committee provided a preliminary proposal for the prudent treatment of banks’ cryptocurrency exposure. This paper is based on the content of the committee’s 2019 discussion paper and responses received from various stakeholders and international industry figures.

BCBS classifies Bitcoin as a ‘unique risk’ rating as the highest risk asset class due to the perceived volatility and illicit use of the cryptocurrency, and has assigned a risk weight of 1,250% for Bitcoin. This essentially means that for every dollar a bank exposes worth of Bitcoin, it has to hold a dollar of capital.

According to the report, it states that depositors and other senior creditors of the bank must have enough funds to absorb the entire loss to the cryptocurrency without exposing them to the risk of loss.

BCBS also proposed to divide crypto assets into two categories. One is an asset that can be dealt with with some modifications in the Basel framework, and the other is Bitcoin (BTC), which is treated conservatively and prudently.

For the first category, tokenized traditional assets and crypto assets with effective stabilization mechanisms, i.e. stablecoins, are included. The second category includes Bitcoin and other assets that do not meet the criteria for classification, such as applying a stabilization device.

BCBS noted that a high risk weight of 1,250% would lead to a ‘conservative outcome’ for direct exposure to crypto assets. However, for the cryptocurrency derivation model, he emphasized that “care must be taken in what ‘value’ is defined in the formula to ensure that the results show similar conservatism.”

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