Posted 1 year ago | by Ben Armstrong
Basil Committee Looks for more Crypto Rules to Protect Banks
The Basil Committee, a part of the international banking regulatory structure, just released a discussion paper that calls for more rules to govern how banks account for crypto holdings. The message appears to be that the Basil Committee sees banks holding more cryptos, and it wants to make sure that they are seen as a weak asset in terms of emergency liquidity.
From the paper:
If banks are authorized, and decide, to acquire crypto-assets or provide related services, the Committee is of the view that they should apply a conservative prudential treatment to such exposures, especially for high-risk crypto-assets.
The Basil Committee sees cryptos along the same lines as it sees a bank's own equity, which would be an illiquid asset during times of market stress. Whether or not this view is warranted is another discussion, but it would appear that the Basil Committee is looking for added regulations in the banking sector.
The Basil Committee May Anticipate a Crunch
Given the size of the crypto markets versus the size of the banking industry, it seems strange that the Basil Committee would worry about cryptos in the grand scheme of a bank's balance sheet.
Most crypto assets are in private hands, and any crypto derivatives that a bank held would have another major bank as a counterparty (at least ultimately, there may be a hedge fund in between the banks).
It may be that the Basil Committee sees a wider role for cryptos in the works, or much higher crypto prices ahead. There is no way that the crypto markets could seriously impact the banking system in its current form, which makes this discussion paper something of an odd duck.
Where is the Cash?
While not directly related to the recent Basil Committee paper, banks all over the world are working on an interesting mystery. A large portion of the world's physical cash is missing, and central banks have no idea where it may be.
Along with all that cash, a big chunk of the West's gold inventory is also being taken out of the system. No one seems to want to talk about where all these physical financial assets are going, or why people may be losing faith in the banking system.
Much like cash or gold, cryptos are an asset that can be used without the involvement of a third party. Whether or not the banking system is working, crypto, cash and gold will still work.
The Basil Committee could see that the current banking system is coming to an end, and working to ensure that banks don't look to cryptos as an asset that would allow them to keep banking without the help of the mothership (global central banking cartel).