Banks are required to reveal their cryptocurrency holdings under the latest Basel regulatory plan.
In a significant move, the Basel Committee on Banking Supervision (BCBS) announced plans on Thursday to make banks disclose their exposure to cryptocurrencies. This decision comes amidst a growing concern over the potential risks associated with the crypto industry and its impact on the banking sector.
The announcement follows the publication of a consultation paper on disclosure requirements for banks' cryptoasset exposures, which is set to be published soon. These proposals will complement the prudential standard for crypto exposures published in December 2022.
The BCBS attributed the failure of the banking sector casualty, Signature Bank, early this year, to an inadequate understanding of the risks associated with crypto industry deposits. The committee's report on the regional banking crisis was dubbed "the most significant system-wide banking stress since the Great Financial Crisis in terms of scale and scope."
The market valuation of crypto assets has seen a dramatic rise and fall over the past few years. According to the committee's report, the market valuation of crypto assets grew from about $16 billion six years ago to nearly $3 trillion in 2021. However, the market valuation fell back to a valuation of just over $1 trillion at the beginning of March 2023.
Crypto was one of three structural trends that may have indirectly contributed to fragilities in the sector early this year. Despite this, the article does not provide information on any new proposals or requirements related to banks' cryptoasset exposures.
The BCBS did not mention any technology-related issues contributing to Signature Bank's failure. The Federal Deposit Insurance Corp. placed blame for Signature Bank's failure on poor management. Regulators were at odds over who to blame for bank failures, with Securities and Exchange Commission Chair Gary Gensler blaming crypto ties and New York State Department of Financial Services Superintendent Adrienne Harris blaming depositor outflows.
As of end-June 2022, the global banking system's direct exposures to cryptoassets were just under €4 billion, or 0.004% of total exposures. The main Swiss bank that had significant direct exposures to cryptocurrencies and faced criticism from authorities for not adequately recognizing the risks of crypto-dependent customer funds and its vulnerability to crypto industry turbulence in 2022 and 2023 was Credit Suisse, which was merged into UBS under emergency government intervention in March 2023.
In a separate report published Thursday, the committee linked this year's regional banking crisis to crypto banks' exposure to the volatile crypto market. However, the article does not provide information on any other banks failing after Signature Bank. The committee did not mention the purchase of licensing rights in relation to Signature Bank.
The BCBS's move to require banks to disclose their exposure to crypto is a significant step towards ensuring transparency and risk management in the banking sector's relationship with the crypto industry. As the crypto market continues to evolve, it is crucial for regulators to stay vigilant and proactive in addressing potential risks.
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