- The 1250% risk weight
- Ensuring a level playing field
The Federal Reserve is currently reviewing proposals to revise its capital rules and Basel risk weighting standards for the nation’s largest banking organizations.
This, of course, is a major opportunity for the cryptocurrency industry to win more legitimacy.
Under current guidelines, BTC is effectively treated as a “toxic asset,” slapped with punitive capital requirements that make it nearly impossible for traditional banks to hold it on their balance sheets.
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Now, advocacy groups like the Bitcoin Policy Institute (BPI) are making an effort to change the narrative.
The 1250% risk weight
Basel III standard is a global regulatory framework designed to ensure that banks maintain enough capital reserves to absorb financial shocks.
It does this by assigning a “risk weight” to different classes of assets.
The current Basel framework assigns unbacked crypto assets a staggering 1,250% risk weight. For comparison, gold and AAA sovereign debt has 0% risk weight. Speculative unlisted stocks have a 400% risk weight.
In layman’s terms, a 1250% risk weight is a de facto ban. It forces a bank to hold capital reserves equal to the total exposure value of the Bitcoin they hold. If a bank wants to hold $100 million in Bitcoin, it must hold a prohibitive amount of fiat capital in reserve against it.
Ensuring a level playing field
Representatives from the Bitcoin Policy Institute are attending the meetings to advocate for a fairer framework.
Conner Brown of the BPI has noted that a change in the guidance “would be a big win for American Bitcoiners.” When asked by a community member what the new standards should theoretically look like, Brown pointed to coin’s fundamental properties as justification for a dramatic reduction in its risk weight.
“At a high level, we think the Fed should bring Bitcoin in line with other like assets,” Brown explained.
The asset offers transparency, deep liquidity, always-on markets, and zero counterparty risk.
Source: https://u.today/bitcoiners-eye-major-victory-as-fed-revises-basel-toxic-asset-standards
