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UPDATE 1-Global banking watchdog to study capital requirements for crypto assets

Thu, 31st Oct 2019 17:26

* Basel ups pressure on banks to end use of Libor

* Looks at voluntary template for sovereign bonds

* Will propose tweaks to credit risk rules
(Adds more detail)

By Huw Jones

LONDON, Oct 31 (Reuters) - Global banking regulators said on
Thursday they will consider how much capital lenders should be
setting aside to cover risks from any holdings of crypto assets.

The Basel Committee, which includes banking regulators from
the United States, Europe and Japan, said it had agreed to
publish a discussion paper on the prudential treatment of crypto
assets - digital assets like bitcoin that are not
linked to any physical asset.

"The Committee reiterated its view that the prudential
treatment of banks’ crypto asset exposures should appropriately
reflect the high degree of risk of crypto assets," the committee
said in a statement at the end of a two-day meeting in Madrid.

Crypto assets have risen up the regulatory agenda after
social media giant Facebook unveiled plans for a digital
currency project called Libra.

"In light of ongoing initiatives in crypto asset markets,
the Committee will seek the views of stakeholders on a wide
range of issues related to the prudential treatment of crypto
assets," it said.

The committee also ratcheted up pressure on lenders to ditch
the tarnished Libor interest rate benchmark which some banks
have been fined for trying to rig.

Britain and the United States want lenders to switch to
using rates compiled by their central banks by the end of 2021.

"The committee places high priority on this issue and
expects all banks to be adequately prepared to meet the
transition timeline," it said.

"The committee will consider whether any further regulatory
or supervisory measures are warranted to help achieve this
outcome."

SOVEREIGN DEBT

The Basel Committee said it will consult next month on
templates for banks to disclose their exposure to government
bonds.

The application of such templates would, however, be on
voluntary basis with Basel member countries free to decide
whether or not to implement them.

The issue of sovereign bond holdings became acute during the
euro zone debt crisis a decade ago, when the bailout of several
countries showed that even highly-rated government bonds can
become risky.

Under Basel rules, banks are permitted to hold little or no
capital against holdings of bonds issued by their home country,
known as zero-risk weighting, even if the bonds are junk rated.

There has not been enough appetite among the Basel
Committee's non European members to change the zero-risk rule
itself, as Thursday's announcement showed.

Basel said it would conduct "deep dive" assessments on the
use of artificial intelligence and machine learning in financial
services, and on banks' dependencies on unregulated third
parties for services, a reference to cloud computing and data.

Basel will publish a consultation paper on a "final set of
limited and targeted" adjustments to its new credit valuation
adjustment rules which the committee said would still come into
force in January 2022.
(Reporting by Huw Jones, Editing by Lawrence White and Kirsten
Donovan)

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