US and UK Push Back Against Basel's Crypto Capital Rules

Global bank regulators are reevaluating their stringent capital rules for banks dealing with cryptocurrencies, largely influenced by resistance from the United States and the United Kingdom. Erik Thedeen, the governor of the Swedish central bank and chair of the Basel Committee on Banking Supervision, stated that the existing 1,250% risk weighting for crypto exposures may need to be reconsidered due to the rapid growth of regulated stablecoins.

The current framework mandates that credit institutions hold their own funds equal to the crypto-asset exposure, which has been viewed as excessively punitive. The resistance from the US Federal Reserve and the Bank of England indicates a significant shift in regulatory approaches, as both have indicated they will not implement the Basel rules in their current form, labeling the capital charges as unrealistic.

This divergence raises concerns about a competitive imbalance; if EU banks remain bound by stringent mandates while their US and UK counterparts enjoy more lenient regulations, it could skew the market dynamics in favor of American and British banks.

Reportedly, the Basel Committee is preparing to revise its 2022 guidance next year to better accommodate banks engaging in crypto markets, particularly in light of the growing adoption of stablecoins in the US.

Thedeen acknowledged that reaching a consensus on how to approach crypto assets might be challenging, given the differing views among regulators regarding the risks associated with cryptocurrencies. Additionally, the ongoing discussions are taking place against the backdrop of US legislative efforts to establish clearer regulatory frameworks for cryptocurrencies.

Senate Banking Committee Chair Tim Scott has indicated plans to push for a vote on a crypto market structure bill as soon as December, aiming to have President Trump sign it into law early next year. This legislative push, alongside the House's passage of the CLARITY Act, aims to clarify the regulatory roles of the Commodity Futures Trading Commission and the Securities and Exchange Commission in overseeing cryptocurrencies.

The evolving regulatory landscape in the US, coupled with potential adjustments from the Basel Committee, could significantly shape the future of crypto banking and market engagement. While the US and UK resist the current stringent Basel requirements, the EU has only partially implemented the framework, further complicating the global regulatory landscape for cryptocurrency.