Stablecoin Boom Forces Basel Committee to Rethink Punishing Bank Rules

Core Viewpoint - The rise of stablecoins is prompting U.S. banks and regulators to push the Basel Committee to reconsider its stringent capital requirements for crypto assets, as stablecoins are currently treated similarly to volatile cryptocurrencies under existing regulations [1][2]. Group 1: Regulatory Landscape - Erik Thedéen, chair of the Basel Committee, acknowledged the need for recalibration of the global regulatory framework due to conflicting perspectives among international regulators, making consensus difficult [2][3]. - The current regulations require banks to maintain significant capital reserves against potential crypto losses, with a 1,250% risk weight imposed on unbacked crypto assets like Bitcoin and Ethereum, classifying them as highly hazardous [3][4]. - The harsh regulatory approach, initially designed as a protective measure, is being reassessed as the use of stablecoins expands and major economies pursue different regulatory paths [5][6]. Group 2: Impact on Financial Institutions - The Basel Committee's regulations, set to take effect on January 1, mandate that banks reserve $1.25 in capital for every $1 of crypto held, making direct engagement with crypto financially unfeasible for most institutions [4]. - As a result, banks have largely avoided holding or providing loans against crypto assets, keeping them off institutional balance sheets [4][5]. - The recent surge in stablecoin usage has intensified demands for reform of these capital requirements, as the focus of regulation is shifting towards stablecoins [6][7].