BIS sets limits on banks’ exposure to crypto markets

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The Bank for International Settlements has set limits on banks’ exposure to crypto markets.

An official BIS announcement released on Friday, December 16 sets a 2% limit for banks’ crypto reserves, with an implementation deadline of January 1, 2025. In general, banks’ crypto exposure should not exceed 1%, the report says.

The rules, set by the bank’s Basel Committee watchdog, support “a global prudential standard for banks’ exposures to crypto-assets,” the BIS said.

“Today’s approval marks an important step in building a global regulatory foundation to mitigate risks to banks from crypto-assets,” said Tiff Macklem, Chairman of the Central Bank Governors Group. and BIS Heads of Oversight (GHOS).

“It is important to continue to monitor bank-related developments in the crypto-asset markets. We remain ready to take further action if necessary.”

As PYMNTS wrote earlier this year, while many consumers use crypto to make payments, it’s also typically an investment instrument.

But banks have been reluctant to advocate crypto investments. A survey of private global banks conducted by the Basel Committee on Banking Supervision (BCBS) found that only seven out of 178 banks had direct exposure to cryptocurrency.

While more than 100 of the banks performed crypto-related activities, such as trading on customer accounts, none of the banks surveyed reported holding direct cryptocurrency holdings as long-term investments.

The BCBS report noted that due to the lack of involvement of traditional financial institutions (FIs), crypto trading and storage has largely been left to unregulated crypto exchanges, essentially forming a shadow crypto financial system.

Another survey showed that 80% of FIs have no interest in providing cryptocurrency investment services to their clients, with only 1% of FIs saying they are very interested in doing so. Overall, while some banks have started to dip their toes into crypto, most haven’t and aren’t particularly interested in doing so yet.

And as PYMNTS noted last month during the ongoing FTX crisis, the slow adoption of crypto by banks “now seems prescient. Traditional players in the financial ecosystem can understandably adopt a wait-and-see approach, in a classic case of once bitten, twice shy.”

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