In a bid to boost transparency within the cryptocurrency industry, the Basel Committee on Banking Supervision plans to mandate banks to fully disclose their cryptocurrency holdings. This latest move comes in response to the troubling fallout experienced by several notable crypto firms and lenders, including Signature and Silicon Valley Bank, in the wake of the escalating popularity of cryptocurrencies.
The prominence of cryptocurrencies is compelling global regulators into action and they see this growing sector as a significant element in these financial service providers’ collapse.
The Basel Committee, a highly influential institution in mainstream finance that establishes industry standards, recognized the necessity for banks to maintain a sizeable capital buffer for their holdings of decentralized digital currencies such as Bitcoin (BTC) and Ethereum (ETH). The regulatory entity’s proactive approach doesn’t stop at capital adequacy, as they now insist on full disclosure of these assets.
Their upcoming consultation paper will detail extensive disclosure requirements concerning banks’ exposure to crypto assets, essentially adding to current capital directives for digital assets, which were finalized this past December. The Basel Committee’s desired outcome is to avert a potential spillover of risks within the financial ecosystem.
The Committee, a global collective of banking supervisors from 28 jurisdictions, include juggernauts such as the United States, United Kingdom, and the European Union. This group has previously signaled their dedication to continuous adjustment of crypto-related regulations. However, the unveiling of separate measures for disclosure marks a substantial stride towards creating an environment of increased crypto transparency.
The watchdog’s report recently shed light on what it labeled as “the most significant system-wide banking stress” since the financial crisis of 2008, highlighting cryptocurrencies as a significant contributor. The report blamed crypto’s booming popularity alongside two other factors for the traditional finance sector’s turbulence in March: the growth of non-bank finance intermediation and the introduction of ultra-fast digital payment systems that lead to quick withdrawing of funds.
Worryingly, the report draws attention to the ripple effects caused by fears of crypto’s inherent volatility. Traditional banking customers, spooked by uncertainties within the crypto market, have been prompted to withdraw their investments, thereby making an already tough situation even worse.
Source: Cryptonews
