The Basel Committee on Banking Supervision wants banks to disclose their crypto holdings as the fallout from the banking crisis earlier this year continues. The Bank of International Settlements oversees the committee and it has identified crypto as the main culprit behind the banks’ demise.
During a meeting held on Oct 4-5, the bank investigated the reason behind the failure of Silicon Valley Bank, Signature Bank of New York, First Republic Bank and financial firm Credit Suisse.
The committee’s analysis precisely identified three structural trends that may have lead to the downfall of these banks. First was increasing role of nonbank intermediation in recent years, second one was concentration of crypto assets in a small number of banks and the ability of customers to move their funds faster due to increasing digitalization.
The report further examined policy issues in detail. Later the specially highlighted crypto’s major role in the failure of Signature Bank. It said that the banks’ “significant client concentration of digital asset companies put it in a precarious position when the “crypto winter” hit in 2022. […] SBNY’s poor governance and inadequate risk management practices put the bank in a position where it could not effectively manage its liquidity in a time of stress.”
The bank was shut by New York State Department of Financial Services on March 12. However, they did not point their fingers at crypto when asked the reason behind the shutting down.
Global regulatory bodies take action
In July 2023, the Financial Stability Board (FSB) said that crypto firms will be asked to comply once global regulations come into force. The FSB published its final recommendations to G20 nations that advised them on setting regulations to supervise any firm that trades crypto.
While talking about the need to establish crypto regulations, the FSB said that it has to introduce safeguards to avoid any mishaps like FTX and its casualty firms. The proposals, should be adopted before the industry becomes large enough to endanger the stability of the financial system.