Basel Committee Explores Mandating Banks to Disclose Crypto Holdings Amid Analyzing March Banking Crisis
Summary:
The Basel Committee on Banking Supervision is contemplating mandating banks to disclose their cryptocurrency holdings, amid analysing the March banking crisis. During their investigation, they attributed the recent bank failures to several factors including the increasing role of nonbank intermediation, concentration of cryptocurrency assets within a small amount of banks and faster movement of customer funds due to digital advancements. They particularly pointed out the role of crypto in the failure of Signature Bank. The committee, however, stated that these discussions aren't indicative of any impending changes to the Basel Framework. A consultation paper on crypto asset exposure disclosure is to be published soon.
The effect of the banking disaster earlier this year remains visible as the Basel Committee on Banking Supervision is contemplating enforcing banks to reveal their cryptocurrency reserves. The body, under the patronage of the Bank for International Settlements, flagged the possession of cryptocurrency as one of the elements contributing to the downfall of several banks in March. During their assembly on Oct. 4-5, the committee scrutinized the reasons for the failure of prominent players such as Silicon Valley Bank, Signature Bank of New York, and First Republic Bank, along with the near-collapse of Credit Suisse, which was later acquired by its rival, UBS.
As per the committee's report, three prominent structural trends might have indirectly played a role in the failure of these banks. These included the growing involvement of nonbank intermediation, the concentration of cryptocurrency assets within a small amount of banks, and the rapid mobility of customer funds owing to digital advancements.
The report particularly underscored the role of cryptocurrency in Signature Bank's failure. The committee discovered that the heavy focus of digital asset companies among SBNY’s clientele left it vulnerable during the "crypto winter" of 2022, causing it to falter. SBNY’s weak governance and subpar risk management practices unable the bank to appropriately manage stress periods, leading to its closure on March 12 by the New York State Department of Financial Services.
However, the report clarified that these discussions are not signaling any planned amendments to the Basel Framework. In January, the committee adjusted its framework to restrict crypto assets in bank reserves to a meager 2%.
The attached statement with the report hinted at impending publication of a consultation paper on cryptocurrency asset exposure disclosure. This is not the first time since the hard-pressed days of the banks in March to be revisited. The United States Federal Reserve Bank and Federal Deposit Insurance Corporation published their respective deductions in April, followed by FDIC revisiting the topic in August.
Published At
10/6/2023 2:41:01 PM
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