About $9 billion in institutional wealth is currently exposed to crypto, as per a unique study conducted by the Basel Committee on Banking Supervision. The Basel committee that is responsible for setting banking standards globally has considered a new set of rules for the capital that lenders must hold against innovative assets. The committee is a group of national regulators that set norms for banks in order to avoid a 2008-style financial crisis.
Interestingly, the risk exposure of the 19 banks which provided data has revealed that the majority of the funds allocated by these banks are locked in Bitcoin and Ethereum– which conveys that institutions are somewhat convinced with the adoption of these two cryptocurrencies. However, the total exposure to risk of the 19 banks stands at 0.14% or just 0.01% on average for crypto.
The letter issued to banks was specifically created to assist the Committee’s two consultative documents on the supervisory approach to banks’ crypto risks, released on June 10th, 2021, and June 30th, 2022, according to Renzo Corrias, a member of the Committee’s Secretariat.
For unbacked currencies like bitcoin and ether as well as algorithmic stablecoins, the committee imposed a strict minimum capital in its consultative documents. The new proposals may impose lending restrictions, which would reduce banks’ incentives to enter certain areas. Hedged exposures and other types of asset-pegged stablecoins would be subject to softer regulations.
However, the data might not be accurate, according to Corrais, since many banks refused to reply and that the data can be skewed.
According to the survey, Bitcoin, Ethereum, or assets derived from those two cryptocurrencies account for the vast majority of exposures. Services that banks perform for other people, like market making, clearing, and custody, account for the majority of the data. Only a handful of institutions are directly engaged in holding or lending cryptocurrency.