‘A blanket ban’- U.S. senators push regulators to ease crypto capital rules
Lawmakers want crypto assets to be treated fairly in bank capital requirements.
U.S. senators have urged financial regulators to reconsider their strict capital rules for banks holding Bitcoin and other crypto assets.
The letter was signed by Republican senators, including Dan Sullivan, Cynthia Lummis, Bill Hagerty, Bernie Moreno, Ted Budd, and Jon Husted. The lawmakers said the current ‘1,250 risk weight’ on Bitcoin was ‘punitive.’
The Basel Committee on Bank Supervision published prudential capital standards for the on-balance sheet treatment of digital assets like bitcoin in 2022 and assigned a 1,250% risk weight—the most punitive classification in the capital framework.
This meant that for every $1 of crypto asset held by a bank, they should set aside $1.25 as an emergency reserve. For comparison, cash or Treasury bonds carry 0% risk weight because they are deemed ‘safe.’
Mortgages attract about 50% risk weight, meaning that BTC and crypto’s 1,250% weighting is the highest. For the Senators, this was like a ‘de facto blanket ban’ on banks that hold crypto assets.
This framework appears to be a blanket penalty assigned by asset category as a de facto ban on banks holding this asset class, in direct tension with a technology-neutral approach.
The lawmakers requested the Federal Reserve, the FDIC, and the OCC to apply a similar guideline on bank capital issued on tokenized stocks to other digital assets.
Will unlock crypto for more adoption?
Reacting to the update, Jeff Walton, the chief risk officer at Bitcoin treasury firm Strive, viewed the push as the potential final regulatory unlock. He said,
The most important final regulatory hurdle for Bitcoin is Basel risk weightings. If this changes, the door to rating agencies & institutional capital holding BTC gets kicked open.
Crypto assets, and BTC, in particular, have scored some regulatory wins in recent years.
From ETF wrappers to direct trading via banks and brokerages like JPMorgan and Morgan Stanley. There has also been a push to include them as alternative investments in retirement funds, 401(k)s, despite some opposition.
Perhaps the above Basel risk weighting reform and tax treatment could enhance further regulatory clarity and adoption.
Final Summary
- Senate Republicans requested regulators to update the current 1,250% risk weighting on banks holding crypto and Bitcoin.
- Analysts billed the push as the ‘final regulatory’ unlock for crypto’s inclusion in the financial system if the proposal is adopted.
