A new plan has been unveiled by the Basel Committee on Banking Supervision, which will require banks to disclose their cryptocurrency holdings.
This comes after a challenging year that saw the collapse of several major crypto firms and crypto-focused lenders Signature and Silicon Valley Bank.
The Basel Committee is taking action in response to international regulators pointing to the rapid rise in popularity of cryptocurrencies as a contributing factor to these collapses.
BIS Plan Requires Full Disclosure of Crypto Holdings
The committee, responsible for setting standards in traditional finance, had already recognized the need for banks to allocate significant capital to cover their holdings of unbacked cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).
Now, the watchdog is going a step further by insisting on full disclosure of these holdings.
In an upcoming consultation paper, the Basel Committee will present a comprehensive set of disclosure requirements regarding banks’ crypto asset exposures.
These requirements will complement the existing capital mandates for digital assets that were finalized in December.
This move is seen as a proactive measure to prevent potential contagion within the financial system.
Basel Committee Includes UK, USA, and EU
The Basel grouping, consisting of bank supervisors from 28 global jurisdictions including major players like the United States, the United Kingdom, and the European Union, had previously expressed their commitment to monitoring crypto-related norms and making necessary adjustments.
However, the introduction of separate disclosure rules represents a significant step towards enhancing transparency in the crypto space.
In a recently published report, the Committee highlighted what it referred to as the “most significant system-wide banking stress” since the 2008 financial crisis, with cryptocurrencies being identified as a key focal point.
The report identified the sudden surge in crypto’s popularity as one of three structural trends indirectly responsible for the financial turmoil witnessed in traditional finance in March.
The other two trends were the growth of non-bank financial intermediation and the emergence of faster digital payment systems enabling depositors to withdraw funds quickly.
The report emphasized that concerns about instability in the crypto market had prompted other customers to withdraw their funds, exacerbating the situation.