The Bank for International Settlements (BIS) is looking towards an extension to accommodate the new asset class by allowing banks to keep up to 1% of their reserves in cryptocurrencies such as Bitcoin (BTC).

BIS’s Basel Committee on Banking Supervision (BCBS) proposed in its consultative document titled “Second consultation on the prudential treatment of crypto-assets,” which was published on June 30. Which will limit the total exposures of banks to “Group 2 crypto-assets to 1% of Tier 1 capital”

Group 2 assets are assets that do not meet classification conditions and includes specific tokenized traditional assets and stablecoins, including unbacked crypto assets. While Group 1 assets include tokenized traditional assets and stablecoins that meet classification conditions.

According to the document, “The exposures of banks to Group 2 crypto-assets will be subjected to a limit. And Banks must apply the exposure limit to their aggregate exposures to Group 2 crypto-assets, which includes both direct holdings (cash and derivatives) and indirect holding (ie those via investment funds, ETF/ETN, special purpose vehicles).”

In the document, it was also specified that “a bank’s total exposure to Group 2 crypto assets must not be higher than 1% of the bank’s Tier capital at all times,” which is in line with the Basel framework that includes all the standards of the BCBS’s.

The Bank for International Settlements (BIS) has always been skeptical of digital currencies which have been exacerbated by the recent crash in the cryptocurrency market.

Featured image source: Reuters