By Huw Jones

Basel revises bank crypto capital plan to include blockchain

LONDON (Reuters) – Banks should take a conservative approach to set aside capital to cover risks from “unbacked” crypto assets on their books. The global Basel Committee of banking regulators said in proposals on Thursday which now also cover blockchain.

Asper Crypto assets have tumbled in value in recent weeks. Partly triggered by the collapse of terra USD, a stable coin whose value was derived by complex algorithmic processes.

As a result, regulators like the Basel Committee are worried about the potential risks. The financial system from the lightly regulated crypto sector .Even though it is still small relative to the size of global stock, bond and derivatives markets.

The proposals on Thursday mark Basel’s second public consultation on cryptocurrencies, which would require banks to take a conservative stance when setting aside capital for crypto holdings.

The Committee’s proposal said crypto assets which are not backed by assets like traditional currencies, and stable coins. Similarly we can say this system is  effective stabilization mechanisms .In fact it should continue to be subject to a conservative prudential treatment. It also  regard to capital set aside for potential losses.

It also proposed a new limit on gross exposures to such crypto assets.

In June last year, Basel had published a first consultation on the crypto sector, which proposed that banks must hold enough capital to cover losses on any bitcoin holdings in full.

Basel said it was keeping the basic structure of that first proposal, which divided crypto assets two broad groups, one including stable coins, and the other higher risk crypto assets, which would require the more conservative capital treatment.

The latest Basel proposals include new elements such as extra capital to cover “evolving risks” from distributed ledger technologies or blockchain, which underpins crypto assets.

The committee said it will continue to monitor market developments to see if the proposals need toughening further.

The committee, made up of banking regulators from the world’s main financial centers, said it plans to finalize the rules by year-end.