Plans to cap banks' holdings of bitcoin (BTC) could undermine the goal of financial reforms aimed a preventing a repeat of the 2008 financial crisis, an influential group representing the futures industry intends to tell the international standard-setters at the Basel Committee on Banking Supervision.
The Futures Industry Association (FIA), whose members include financial giants such as Goldman Sachs, Deutsche Bank and the Industrial and Commercial Bank of China, said it was protesting to the committee about the likely impact of those plans.
The Basel committee, which sets requirements to ensure banks don't take on more risk than they can afford, set out its ideas in a consultation paper published in June. The proposals could prove crucial to the take-up of crypto by traditional financial institutions.
“Without clarification the proposed framework would undermine consensus post-crisis reforms and discourage banks from facilitating the central clearing of crypto-asset linked derivatives,” the group said in a statement published on its website Friday.
The result would be to “limit the risk-reducing effect” provided by using central clearinghouses for derivatives trades. It would also limit banks' ability to mitigate risks using financial instruments in a practice known as hedging, the statement added.
When contacted by CoinDesk, a representative of the FIA said the statement had been posted in error, and that no submission has yet been sent to the Basel Committee. At the time of writing the statement still appeared on the FIA’s website.
An original June 2021 plan from the Basel Committee, which told banks to issue $1 in capital for each $1 of crypto they hold, drew a volley of criticism for being too conservative, effectively ruling out any incentive to get into crypto markets. A later iteration, published one year later, gave some ground to crypto fans by recognizing the impact of hedging, but also imposed a cap on total exposure to unbacked crypto assets like bitcoin.
In a separate document also posted on the FIA website Friday, the European Principal Traders’ Association (EPTA) said the cap, set at 1% of a banks' core capital, “will prevent many institutions from entering the market for crypto assets at all,” suggesting that the limit be withdrawn, significantly increased, or disapplied for its members. EPTA is an FIA affiliate representing market participants who buy and sell securities on their own account.
The FIA is also working with other industry associations to argue that bringing crypto – and the distributed ledger technology it’s based on – into traditional finance will aid stability, allowing bank clients to benefit from greater efficiency and transparency, it said.
A study published by the Basel Commitee earlier Friday suggest that banks' crypto holdings are as little as 0.01% of their total risk exposure, focused on client services like custody and clearing.
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