Bank for International Settlements Finalizes Policy With 2% Cryptoasset Exposure Cap

The Bank for International Settlements’ (BIS) Basel Committee on Banking Supervision recently released a proposed policy that would set a 2% limit on the amount of banks’ Tier 1 capital held in Bitcoin and cryptocurrencies. 

The policy has the support of the Basel Committee’s supervisory body, the Group of Central Bank Governors and Heads of Supervision (GHOS).

Tier 1 capital refers to a bank’s core capital, which is kept in its reserves and utilized to finance its clients’ commercial activities. Along with declared reserves and a few other assets, it also includes common stock.

Bitcoin would fall under the policy’s Group 2 crypto asset class as an “unbacked cryptoasset.” The policy also mentions that “a bank’s total exposure to Group 2 cryptoassets should not generally be higher than 1% of the bank’s Tier 1 capital and must not exceed 2% of the bank’s Tier 1 capital.”

In June of 2021, the BIS proposed a policy of 1% for global banks, but was countered with a 5% reserve limit.

Chair of the GHOS Tiff Macklem stated:

Today’s endorsement by the GHOS marks an important milestone in developing a global regulatory baseline for mitigating risks to banks from cryptoassets. It is important to continue to monitor bank-related developments in cryptoasset markets. We remain ready to act further if necessary.