With the latest verdict from the BIS (Bank for International Settlements), banks can now store 1% of their reserves as cryptocurrencies. Before now, the BIS has maintained a skeptical approach toward digital currencies.
The recent market crisis and issue with the Terra ecosystem have only made things worse. However, it appears things have changed, and the BIS is ready to embrace digital currencies.
On June 30th, the BCBS (Basel Committee on Banking Supervision) under the BIS published a consultative document. The document stated the BIS had limited the bank’s exposure to group 2 crypto assets to 1%.
BIS Mandates Banks To Maintain 1% Exposure To Group 2 Crypto Assets
Group 2 assets are those assets that are not under any classification. This is because they do not meet certain conditions.
They include stablecoins, some tokenized assets, and unbacked crypto assets. Meanwhile, the group 1 assets include stablecoins and tokenized assets that meet the classification conditions.
The document stated that:
“We have limited the exposure of banks to crypto assets in group 2. Banks are mandated to apply this limit to all their direct holdings. These include derivatives and cash. They will also apply it to their indirect holdings such as ETF/ETN, investment funds, and special purpose vehicles.”
Additionally, the document said banks’ exposure must not exceed 1% of their Tier capital. This is according to the latest large exposure regulation of the BCBS Basel Framework.
Furthermore, the committee said it would issue another limit for crypto assets outside the wide exposure rule. Meanwhile, it would review this present limit periodically.
BIS Still Skeptical Towards Cryptocurrencies
Since the inception of crypto, the BIS has been skeptical about its usage and adoption. The banking institution even warned people to beware of DeFi (Decentralized finance) platforms.
Earlier, Finbold reported that the BIS had reaffirmed its negative stance toward digital assets. It cited the ongoing crypto market crisis as proof of its claims.
In addition, the institute also commented on the recent fall of the DeFi platform, Terra. The BIS stated that government should make strict regulations to prevent future occurrences.
Last month, the global body published a bulletin on cryptocurrency. The bulletin stated that cryptocurrency could not replace fiat currency. Also, the global institution cited some problems in the blockchain and crypto sector.
They include network congestion and high fees, which lead to fragmentation of these platforms. However, the BIS’ latest decision shows the global agency is opening its doors to crypto.