The session paper proposes dividing crypto belongings into Teams 1 and a pair of. Group 1 consists of tokenized conventional belongings reminiscent of shares issued on the blockchain and stablecoins that meet classification necessities.
The classification necessities embody passing a redemption danger take a look at and a foundation danger take a look at. The redemption danger take a look at ensures that the stablecoins are redeemable always at peg worth. The premise danger take a look at determines if the stablecoin will be bought near the peg worth.
The stablecoins and cryptocurrencies that don’t meet these necessities fall inside Group 2. These are thought-about to be riskier than the belongings in Group 1 and embody cryptocurrencies like Bitcoin and Ethereum, in addition to algorithmic stablecoins. Therefore, the committee recommends a 1% cap on publicity to Group 2 crypto belongings.
For big banks reminiscent of JP Morgan and Chase, which has almost $264 billion in Tier 1 capital, the 1% cap signifies billions of {dollars} that may be held in crypto.
The earlier session paper had proposed that banks wanted to make sure all crypto exposures had been backed by an equal quantity of capital. In different phrases, if a financial institution held $100 in crypto, it had to make sure it had $100 as a reserve.
Nonetheless, the committee has heeded the criticisms it obtained for its earlier session paper. The brand new paper suggests lighter guidelines for cryptocurrencies with equal liquid derivatives reminiscent of exchange-traded funds (ETFs), recognizing hedging prospects.
