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Major Banks Oppose Basel Committee’s “Overly Conservative” Crypto Rules

cryptoknowmics.com 23 September 2021 03:30, UTC

A consortium of the largest US and European banks has opposed Basel Committee’s new rules for financial institutions exposed to cryptocurrencies.

Major Banks Call Basel Committee’s Crypto Rules “Overly Conservative”

The Global Financial Markets Association (GFMA), which counts the likes of JPMorgan and Deutsche Bank as members, issued a letter opposing Basel Committee’s new crypto rules on September 20.

Basel Committee, which is made up of global regulators and central bank governors, has suggested that banks should set aside funds equivalent to each unit of their crypto holdings.

“We find the proposals in the consultation to be so overly conservative and simplistic that they, in effect, would preclude bank involvement in crypto-asset markets,” the GFMA wrote in its letter.

Banking regulators have repeatedly urged caution on cryptocurrencies and their use in money laundering and terrorism financing. However, trade associations argue that the new ruleset would prevent banks from holding digital assets, which would encourage the growth of unregulated entities in the system.

For its part, the Basel Committee maintains that Bitcoin’s interaction with banks “could increase risks to global financial stability if capital requirements are not introduced.” In June, the committee stated that banks should apply a 1,250% risk weight to bitcoin, which it believes is “similar in effect to the deduction of the asset from the capital."

Christine Lagarde Insists Cryptocurrencies Are Not Currencies

Christine Lagarde, the president of the European Central Bank (ECB) -- which is also a member of the Basel Committee -- recently said that cryptos are not currencies. She added that they are “highly speculative, suspicious occasionally, and high intensity in terms of energy consumption.”

“I think we have to distinguish between cryptos that are those highly speculative, suspicious occasionally, and high intensity in terms of energy consumption assets, but they’re not a currency,” the ECB chief said in an interview.

Lagarde also extended her support to central bank digital currencies (CBDCs). She noted that “instead of having banknotes and cash in our pockets in our wallets, we can have exactly the same thing but in a digital form so all of us are working on this and certainly I was keen to push the issue, the CBDC issue, on our agenda because I believe that we have to stand ready for that.”

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