All about Basel Committee’s oversight body and its latest on crypto regulations
The Basel Committee on Banking Supervision is an organization made up of 45 members, comprising central banks and bank supervisors from 28 jurisdictions. It is the primary global standard setter for the prudential regulation of banks. Additionally, it provides a forum for regular cooperation on banking supervisory matters.
The BCBS is part of the BIS (Bank of International Settlements).
The Group of Governors and Heads of Supervision [GHOS] overseeing the Basel Committee on Banking Supervision have called for improved financial standards. They seek to limit the exposure of banks to crypto to manage the risks associated with this volatile commodity.
press release: Governors and Heads of Supervision endorse global bank prudential standard for cryptoassets and work programme of Basel Committee
report: Prudential treatment of cryptoasset exposures [pdf]
The history of the Basel Committee throws light on some interesting developments, all shrouded in bankster-speak to make them sound ever so serious and prudent.
There was strong recognition within the Committee of the overriding need for a multinational accord to strengthen the stability of the international banking system and to remove a source of competitive inequality arising from differences in national capital requirements.
"Competitive inequality"; so as to limit the creation of gargantuan new banks arising from developing countries.
The 1988 Accord called for a minimum ratio of capital to risk-weighted assets of 8% to be implemented by the end of 1992. Ultimately, this framework was introduced not only in member countries but also in virtually all countries with active international banks.
8%
That's a fractional reserve ratio of 12.5 to 1.
And that is considered "prudent".
Let's for a moment forget that we are talking about money, but the arithmetic on its own is truly pathetic. It does seem designed to maximise profits with a thin veneer of probity and prudence. Not unlike crypto itself! However, crypto has no rules at all, so that a leverage of 100 to 1 is easily possible. Such naive greed will work only so long as the bubble keeps inflating. Deflate just a little bit and the altitude loss can be precipitous.
Look at this, from the actual report:
Group 1 cryptoassets. Those that meet in full a set of classification conditions. Group 1 cryptoassets include tokenised traditional assets (Group 1a) and cryptoassets with effective stabilisation mechanisms (Group 1b). Group 1 cryptoassets are subject to capital requirements based on the risk weights of underlying exposures as set out in the existing Basel Framework.[2]
But look at that Note 2: "Algorithm-based stablecoins or those stablecoins that use protocols to maintain their value are not eligible for Group 1."
Redemption risk test and a supervision/regulation requirement: This test and requirement must be met for stablecoins to be eligible for inclusion in Group 1. They seek to ensure that only stablecoins issued by supervised and regulated entities that have robust redemption rights and governance are eligible for inclusion.
And finally, just for now:
Group 2 cryptoassets. Those that fail to meet any of the classification conditions. As a result, they pose additional and higher risks compared with Group 1 cryptoassets and consequently are subject to a newly prescribed conservative capital treatment. In addition to any tokenised traditional assets and stablecoins that fail the classification conditions, Group 2 includes all unbacked cryptoassets. A set of hedging recognition criteria is used to identify those Group 2 cryptoassets where a limited degree of hedging is permitted to be recognised (Group 2a) and those where hedging is not recognised (Group 2b).
So... as I have long suspected, the current crypto ecosystem is one big experiment. Banksters don't wish to make a loss (unless for strategic purposes) but they also deeply dislike other people making more profits than them. Hence, regulate away the clever competition while keeping an eye on any genuine innovations. But regulations demand compliance, and that costs money and thus limits profits.
Then you look at banks themselves and note how fragile they all are - their profit margins compared to their reserve assets should elicit a sharp intake of breath. Remember, they are being "prudent". All this risk analysis is because they all operate on the knife-edge of collapse. The big banksters tied to central banks are the real earners - and they are the people who make up these regulations.
The obsession with risk analysis is precisely because they are running at the edge of disaster all the time. Anyway taking a 10x leveraged bet knows that a 10% drop in price and you're walking away naked.