The Bitcoin Policy Institute (BPI) said it plans to press the US Federal Reserve to change how banks are required to treat bitcoin under international capital rules.
BPI managing director Conner Brown wrote in an X post on Wednesday:
“BPI will be reviewing this proposal closely and submitting a public comment to ensure that US regulators get Bitcoin’s treatment right.”
Fed proposal will implement Basel risk weights
The Fed said it will soon seek public comment on a proposal covering how US banks should implement risk-weighting guidance from the Basel Committee on Banking Supervision.
Federal Reserve vice chair for supervision Michelle Bowman said on Thursday that the agency will be proposing rules in the coming weeks to implement the final phase of Basel in the US.
Bowman said:
“[The aim is] more efficient regulation and banks that are better [positioned] to support economic growth, while preserving safety and soundness.”
Why BPI calls bitcoin treatment “toxic”
Brown said bitcoin is treated as a “toxic asset” under the Basel framework.
He said bitcoin carries a 1,250% risk weighting, which he described as harsher than virtually all other asset classes.
1,250% requirement and bank balance sheets
The 1,250% capital requirement means banks must back any bitcoin on their balance sheets at a 1:1 ratio with approved collateral, making it more costly to hold than other assets.
Brown wrote in a blog post last month:
“This risk weighting makes it extremely difficult for banks to provide financial services to Bitcoiners and Bitcoin companies.”
Under Basel, cash, physical gold, and government debt carry a 0% risk weight.
In 2021, the Basel Committee proposed placing crypto in its high-risk Group 2 set of assets, with Group 2 holdings restricted to under 1% of the value of Group 1 holdings.
