BIS Proposes New Rules for Banks Regarding Cryptocurrency Risks

The Bank for International Settlements (BIS), a global financial institution, is set to release a programmatic document aimed at regulating how banks manage cryptocurrency risks. This initiative comes in response to the growing popularity of cryptocurrencies, non-bank financial intermediation, and digital payment systems, all of which have contributed to market disruptions. The document, expected to be published shortly for consultation, will complement the requirements introduced in December of the previous year concerning cryptocurrencies' inclusion in banks' capital and will obligate banks to disclose the volume of such assets held in their accounts.

Previously, the Basel Committee on Banking Supervision stated that banks should not count unsecured cryptocurrencies, such as Bitcoin and Ethereum, as part of their capital. These rules are slated to come into effect by 2025, though officials have acknowledged that adjustments may be made depending on market reactions.

The new BIS report cites the case of Signature, a cryptocurrency bank that was shut down by U.S. authorities in March. According to the authors, the leaders of Signature failed to consider that concerns about cryptocurrency instability could lead to a massive withdrawal of deposits, upon which the institution relied.

Earlier, BIS had argued that inherent structural flaws in cryptocurrencies made them unsuitable for use as a monetary instrument. Nevertheless, experts have noted that banning cryptocurrencies could stifle innovation and have proposed regulating this asset class instead. According to a BIS study, the volume of cryptocurrencies held by banks decreased by 66% from 2021 to 2022.

In February, BIS initiated the development of a monitoring system designed to determine the reserves held by stablecoin issuers.