Leading banks in the United States and Europe have joined hands for the purpose of objecting to a set of rules concerning digital currency holdings. Amongst the prominent banks that are against the rules pertaining to cryptocurrencies include JPMorgan Chase and Deutsche Bank. According to the new set of rules being developed, all financial institutions that hold Bitcoin would be required to set aside one dollar in capital equivalent to a single dollar of the Bitcoin they own. These proposals pertaining to crypto holdings had been published by the Basel Committee for Banking Supervision (BCBS) in June.
The said committee comprises of representatives of central banks as well as global regulators, which include the European Central Bank (ECB) and the Federal Reserve in the United States. However, a letter was published by the Global Financial Markets Association, which comprises of JPMorgan Chase, Deutsche Bank and five other prominent financial industry associations. The letter argues that cryptocurrencies, such as Bitcoin, should not be subjected to these extensive capital requirements. The banking association said that introducing such harsh rules in the crypto industry would only prevent these financial institutions from participating in the crypto market.
This would mean that the digital currency space would just be saturated by unregulated entities and this would only compromise investor protection that the regulators want to offer. The letter conveyed that the proposal appeared to be overly simplistic and conservative because it would just end up precluding the involvement of banking institutions in the crypto space. Some of the proposals of the Basel Committee including a 1250% risk weight for Bitcoin. This indicated that a bank holding Bitcoin worth $100 would be required to have a risk-weighted asset with a value of $1,250. In addition, it proposed that all banks investing in the crypto market would have to have an 8% minimum capital requirement.
Apart from that, the banks were also opposed to the inclusion of stablecoins in the same category as that of other digital currencies like Bitcoin, as these stablecoins usually have their value pegged to the US dollar, gold, or some other asset. Recently, stablecoins have become a popular topic of discussion amongst global regulators. The combined market capitalization of these stablecoins has reached a whopping $100 billion and the most popular of them all is none other than the Tether token (USDT), which is pegged to the US dollar, and the USD Coin (USDC) by Circle.
Recently, the Department of Treasury in the US stated that they were conducting discussions pertaining to stablecoins and the risk they pose to financial stability. Gary Gensler, the Chairman of the Securities and Exchange Commission (SEC) recently referred to these stablecoins as poker chips in a casino. Janet Yellen, the Treasury Secretary, had also said in July that there was an urgent need of developing a regulatory framework that could be used for dealing with stablecoins. This only indicates that crypto investors are likely to see additional regulations being introduced in regard to stablecoins soon.