Big banks reject strict Basel rules for Bitcoin cryptocurrencies

Three months after global banking regulators proposed tough new rules for traditional financial institutions seeking exposure to bitcoins, JPMorgan, Deutsche Bank and other banking giants turned down what would require them to be one dollar in capital for every dollar of BTC they own to set aside.

The strict rules were proposed in June by the Basel Committee on Banking Supervision, a group of regulators from the world’s major financial centers. However, the Global Financial Markets Association, a forum for banks that includes JPMorgan and Deutsche Bank, published a letter along with five other industry associations on Tuesday opposing the new regulation, the Wall Street Journal reported.

“We find the proposals in the consultation so too conservative and simple that they would de facto rule out the banks’ participation in crypto asset markets,” the associations wrote, according to the report, in the letter to the Basel committee.

The committee’s proposed rules did indeed show an attempt by regulators to discourage banking institutions from, or at least discouraging, exposure to bitcoin. While banks’ exposure to Bitcoin is currently limited, the Switzerland-based committee said in June, “Their continued growth could increase risks to global financial stability if capital requirements are not introduced,” Reuters reported.

The proposal came amid strong resistance from developing countries to bitcoin and cryptocurrencies. The central banks of the world’s major economies were downright negative on such assets while designing their own.

European Central Bank (ECB) head Christine Lagarde recently stepped into the spotlight for saying Bitcoin and “cryptos aren’t currencies, period”. The ECB chief later praised her own digital central bank currency (CBDC) to drive investors away from Bitcoin and into their soon-to-be-developed digitized euro.

The markets don’t buy such narratives, however. In addition to private investors, institutional investors, companies and banks have shown an increased appetite for Bitcoin exposure in the past year. As global central banks’ monetary policies undermine the purchasing power of those who hold their currencies, investors tend to move towards harder assets.

In their most recent rebuttal, the largest banks in the US and Europe resisted increased regulatory scrutiny, which they believe would mean backlash. From a technical point of view, the Basel Committee, to which the Federal Reserve, the ECB and other large central banks belong, does not enforce any rules itself, but rather sets minimum standards that regulators around the world should adhere to.

“The committee said in June that banks should apply a 1,250% risk weight to Bitcoin, which is ‘similar in effect to withdrawing the asset from capital,'” the WSJ report said. “If a bank had a $ 100 bitcoin exposure it would result in risk-weighted assets of $ 1,250, which, multiplied by the 8% minimum capital requirement, results in a provision of at least $ 100.”

In response, the letter signed by the Financial Services Forum, the Futures Industry Association, the Institute of International Finance, the International Swaps and Derivatives Association, the Chamber of Digital Commerce and the Global Financial Markets Association states that it was such a high risk weight not necessary for Bitcoin.

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