June 8, 2021 | AtoZ Markets – In a recent meeting held on June 4, the Basel Committee on Banking Supervision (BCBS) said it discussed market developments relating to cryptoassets.
Plans to hold public consultations on the use of cryptocurrencies were discussed in the meeting chaired by Pablo Hernández de Cos, the Governor of the Bank of Spain.
During the meeting, the Bank for International Settlements’ Basel Committee also talked about developing new methods to try to ensure that banks can safely provide options for cryptoasset exposure.
The Basel Committee is the primary global standard setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters.
Its mandate is to strengthen the regulation, supervision, and practices of banks worldwide with the purpose of enhancing financial stability. The Committee reports to the Group of Central Bank Governors and Heads of Supervision and seeks its endorsement for major decisions.
What Did the Committee Say?
The Committee noted “While banks’ exposures to cryptoassets are currently limited, the continued growth and innovation in cryptoassets and related services, coupled with the heightened interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment”.
Also said that ” Agreed to hold a public consultation to seek the views of external stakeholders on the design of prudential treatment of banks’ exposures to cryptoassets”.
The consultation paper will be published this week, and everyone will be attentive to what is said there.
What Are the Committee’s Concerns?
The Committee is of the view that the growth of crypto-assets and related services has the potential to raise financial stability concerns and increase risks faced by banks. The estimated market capitalization of cryptoassets reached a historical peak exceeding $800 billion in January 2018
These types of crypto-assets are not legal tender and are not backed by any government or public authority.
Therefore, if banks are authorized, and decide to acquire crypto-assets or provide related services, the Committee is of the view that they should apply a conservative prudential treatment to such exposures, especially for high-risk crypto-assets.
A separate initiative relates to central bank digital currencies, where many central banks are continuing to look at the implications of this potential type of central bank money.
Such forms of digital currencies are outside the scope of this discussion paper.
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