Basel Committee to examine bank cryptocurrency asset disclosure regulations

The committee’s existing imposition of limits on cryptocurrency holdings within bank reserves merely scratches the surface of a more profound issue.

The crypto concentration in a select few banks proved to be the harbinger of the March crisis, as the committee aptly pointed out.

The repercussions of this banking crisis continue to reverberate through the corridors of financial institutions, prompting the Basel Committee on Banking Supervision, an entity operating under the auspices of the Bank for International Settlements, to mull over the prospect of mandatory disclosure of crypto asset holdings by banks. A pivotal discussion transpired during the committee’s meeting on October 4–5, wherein the underlying causes of Silicon Valley Bank’s, Signature Bank of New York’s, and First Republic Bank’s failures were scrutinized, alongside the near-calamity of Credit Suisse, which eventually succumbed to acquisition by its rival, UBS.

The committee’s report highlights three structural trends that could have indirectly fanned the flames of these banks’ downfalls: the burgeoning role of nonbank intermediaries in recent times, the concentration of crypto assets within a handful of banks, and the accelerated movement of funds facilitated by the inexorable wave of digitization. Notably, Silicon Valley Bank’s precipitous fall during the “crypto winter” of 2022 can be attributed to its undue concentration of digital asset clients. Inadequate governance and risk management practices further exacerbated the bank’s plight, rendering it incapable of effectively managing its liquidity in times of distress.

On a related note, the closure of Signature Bank by the New York State Department of Financial Services on March 12 was met with the regulators’ assurance that crypto played no pivotal role in their decision-making.

It is important to underscore that the discussion at hand does not foreshadow any impending revisions to the Basel Framework, as clarified in the report. In a separate development, the committee’s announcement alludes to an imminent release of a consultation paper on the disclosure of crypto asset exposure, promising further insights into this evolving landscape.

This narrative represents but the latest iteration of the tumultuous events that besieged these banks in March. The United States Federal Reserve Bank and the Federal Deposit Insurance Corporation (FDIC) had already penned their assessments of these events in April, with the FDIC revisiting the matter once more in August.