The Bank for International Settlements (BIS) often referred to as the ‘Central bank for Central banks’ announced a new rule that will permit banks to store bitcoin equivalent to 2% of their reserves.
BIS stated in the December 2022 Prudential treatment of crypto asset exposures report that the policy will take effect from January 1, 2025, and the policy is expected to cover several aspects of how crypto assets are to be defined and processed.
The BIS had earlier issued a report to allow banks to keep 1% of their reserves in crypto. Another 1% has therefore been added according to the new policy.
The report stated that banks are required to classify crypto assets into 2 groups. The Group 1 crypto assets include tokenized traditional assets. Capital requirements for Group 1 crypto assets are based on the risk weights of underlying exposures as defined in the existing Basel Framework. While Group 2 entails all crypto assets without backing.
The report also highlighted that banks’ exposure to Group 2 crypto assets must be less than 1% and cannot exceed 2% of Tier 1 capital.
The Introduction of Crypto Policies
The BIS has a number of important functions and responsibilities, including providing a platform for central banks to discuss issues related to monetary and financial stability and Facilitating international cooperation among central banks and other financial authorities.
Some other crypto policies have been established to ensure the regulation and expansion of the blockchain industry. In recent times, The Financial Stability Board (FSB) has stated that it intends to release regulations for cryptocurrencies in 2023.
Dietrich Domanski, the departing Secretary General of FSB highlighted that the recent developments especially with the collapse of the FTX exchange have made it clear that the risks associated with the crypto industry must be addressed.
In a similar situation, the president of the European Central Bank (ECB) Christine Lagarde is advocating for more stringent crypto regulation in the European Union. Lagarde said that the regulation of the blockchain industry is of utmost necessity following the crash of the FTX exchange.
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