This week derivatives association ISDA published a paper analyzing how banks could use effective hedging for certain crypto-assets to reduce balance sheet exposures. This follows last year’s publication of proposed rules by the Basel Committee for Banking Supervision, which envisage stringent capital requirements for bank cryptocurrency exposures, giving them a 1250% risk weighting. Additionally, hedging was not counted.
The Basel Committee grouped crypto-assets into a first group of lower risk tokenized conventional assets and stablecoins versus cryptocurrencies in a second group.
A combined industry response to the Basel consultation argued that this second group be split into 2a and 2b, with only Bitcoin and Ether being classified as 2a for now. If there are very liquid markets for these crypto-assets and derivatives are clearable at a qualified central counterparty, then they believe the treatment should be different.
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