Wall Street Groups Urge Basel to Halt Crypto Rules Over 1,250% Capital Requirements

Major financial industry associations have called on the Basel Committee on Banking Supervision to reconsider its upcoming crypto regulations, arguing that the proposed standards could effectively bar banks from participating in the digital asset market. In a letter dated Tuesday, eight trade groups—among them the Global Financial Markets Association and the Institute of International Finance—urged the committee to “temporarily pause” the implementation of the rules scheduled to take effect in January 2026 [1]. These standards, while not legally binding, are typically adopted by member countries and could shape the competitiveness of major international banks in the $2.8 trillion crypto market [1].

The letter criticizes the “punitive capital treatments” embedded in the Basel framework, including capital requirements of up to 1,250% for many crypto assets—far exceeding those for traditional investments like corporate bonds or equities [1]. It also points out restrictive exposure limits, such as a 1% cap on “Group 2” crypto holdings as a percentage of Tier 1 capital, which it argues would make crypto activities uneconomical for banks [1]. The groups warn that these policies could push crypto operations outside the regulated financial system, undermining safety and stability.

Musheer Ahmed, founder of Finstep Asia, noted that the current Basel capital rules reflect outdated risk perceptions from the 2022 FTX crisis era [1]. He emphasized that the crypto market has evolved with increased institutional participation and improved risk management practices, aligning more closely with traditional finance [1]. The trade groups also cited trading data showing that Bitcoin and Ethereum have daily volumes of $10.6 billion and $6.4 billion respectively—far surpassing the average of $192 million for S&P 500 companies—yet face disproportionately higher regulatory burdens [1].

The letter highlights the importance of bank involvement in promoting financial stability and client protections, warning that exclusion from the crypto market could lead to a “bifurcated market structure” [1]. While the Basel Committee issued technical amendments in July 2024, the groups argue that these revisions do not address the core structural problems in the original 2022 framework [1]. They stressed that inconsistent global implementation risks fragmenting the market and undermining the goal of setting a minimum global standard [1].

The call for a reevaluation comes at a time of growing institutional interest in crypto assets and evolving risk management practices [1]. As the Basel Committee weighs these concerns, it remains to be seen whether the final regulations will shift to reflect a more mature and regulated market environment [1].

Source: [1] Wall Street Trade Groups Call for Rethink of Basel Crypto Standards (https://decrypt.co/335946/wall-street-trade-groups-call-rethink-basel-crypto-standards)