Just-In: Bank of International Settlements New Policy Allows Banks To Hold 2% In Crypto

The Bank for International Settlements (BIS) has recently released its Prudential Treatment of Cryptoasset exposure report for December 2022. And as per the official statement, they have introduced a new policy that permits banks to now hold 2% of their reserves in cryptocurrencies.

Increase In Crypto Reserves

Following the second consultation on the prudential regulation of banks’ exposure to crypto assets over the summer, the new policy has been drafted, wherein, it permits banks to hold 2% of their reserves in cryptocurrencies.

The policy, which covers several aspects of how cryptoassets are to be defined and processed, will take effect on January 1st, 2025.

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Earlier in June, the BIS announced the introduction of crypto assets in reserves which limited banks to hold not more than 1% of their reserves in cryptocurrency.

The official announcement segregates cryptocurrencies under two groups viz. Group 1 and Group 2.  Tokenized traditional assets and digital assets “with effective stabilization mechanisms” are both included in the first category. Whereas, digital assets that “fail to meet any of the classification conditions” are referred to as Group 2 assets.

Bank of International Settlement’s Crypto Push

In addition, the document states that a bank’s exposures to Group 2 crypto assets should not exceed 2% of the bank’s Tier 1 capital, within their reserves. This criterion has been specifically mentioned under the reserves section of the report. And, with this new development, financial institutions will now be able to venture into different cryptocurrencies and in turn, grow their reserves.

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While detailing about risks and supervision of these assets, the report further states that:

The required process has been modified to remove the supervisory pre-approval element; instead, in the final standard banks are required to notify supervisors of classification decisions and supervisors will have the power to override these decisions if they disagree with a bank’s assessment.

Dismal Year For Crypto

The crypto market has received a relatively low traction this year, with many crypto firms either shutting down or in process of filing bankruptcy.

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The fall of the FTX giant signaled a downward trend for a number of digital assets and the U.S. Federal Reserve’s recent rate hike announcement came as the final nail in the coffin. This news, however, comes as a breath of fresh air to the plaguing crypto market.