Banks and Regulators Clash Over Outdated Crypto Rules

The banking industry is facing mounting pressure to reassess its upcoming regulatory standards for cryptocurrency, with a coalition of financial organizations urging a delay in the 2026 implementation of the Basel Committee’s proposed rules. The Global Financial Markets Association, the Institute of International Finance, and the International Swaps and Derivatives Association, among others, have expressed concerns that the rules—particularly the high capital requirements for holding crypto assets—could hinder banks' ability to engage meaningfully with the growing digital asset sector [1]. The letter to the Basel Committee highlights a disconnect between the 2022 standards and the current, rapidly evolving landscape, noting that crypto’s integration into mainstream finance has outpaced the regulatory framework [2].

The Basel Committee's proposed rules assign a 1250% risk weighting to cryptocurrencies held on permissionless blockchains, which translates to a requirement for banks to hold at least a dollar of capital for every dollar of crypto assets on their balance sheets [3]. In contrast, assets on permissioned blockchains are treated more favorably, similar to conventional financial instruments. The signatories of the letter argue that this binary approach is neither risk-sensitive nor economically rational, especially given the increased stability and mainstream acceptance of digital assets in recent years [4]. The call for a temporary pause in implementation seeks to allow for a reassessment of the standards in light of new developments, including the U.S. government’s pro-crypto regulatory shifts and the surge in institutional interest [5].

In the U.S., regulatory changes have further fueled the push for more flexible crypto rules. President Donald Trump’s administration has supported the sector through legislation such as the GENIUS Act, which provides a legal framework for stablecoins and encourages innovation. Additionally, the Federal Reserve and other banking regulators have moved to eliminate restrictive supervisory practices, including the removal of “reputational risk” considerations that previously deterred banks from engaging with crypto firms. These changes reflect a broader industry and regulatory alignment toward legitimizing digital assets within the traditional financial system [6]. Michelle Bowman, the Fed’s Vice Chair for Supervision, has emphasized the importance of balancing innovation with risk management, advocating for a more nuanced and adaptable regulatory approach [7].

The U.S. Federal Reserve has also taken concrete steps to support the integration of crypto into banking operations. In a recent move, it shut down its two-year-old Novel Activities Supervision Program, signaling a shift back to integrating digital asset oversight into standard supervisory processes. This decision aligns with the Trump administration’s broader strategy of reducing regulatory burdens on the crypto sector and encouraging innovation [8]. Furthermore, the Fed has proposed allowing its staff to hold small amounts of crypto to better understand the technology, a move that could enhance regulatory insight and responsiveness [9]. These developments underscore a shift in U.S. banking policy, with federal regulators increasingly recognizing the economic and technological potential of digital assets [10].

Despite these domestic efforts, the global regulatory landscape remains fragmented. The Basel Committee, while influential, does not enforce its standards directly, relying on member countries to apply them within their jurisdictions. The lack of a unified implementation strategy raises concerns about regulatory arbitrage and the potential for market fragmentation. In their letter, the financial industry groups emphasize the importance of consistent global standards to ensure fair competition and mitigate cross-border risks [11]. However, the uncertainty surrounding whether all jurisdictions will adopt the 2026 rules complicates the timeline and effectiveness of the proposed standards. This inconsistency highlights the need for a more flexible and globally coordinated approach to crypto regulation [12].

As the debate over crypto regulation continues, key stakeholders are calling for a reassessment of the risk assessment models underpinning the Basel standards. The industry argues that the proposed capital surcharges fail to account for the improved risk management practices and technological safeguards that have emerged in the crypto sector. For example, the adoption of tokenization and stablecoin technologies has already demonstrated the potential for faster, more secure, and cost-effective financial transactions. These innovations have gained traction not only in the U.S. but also in international markets, further justifying the need for a regulatory framework that supports rather than hinders innovation [13]. The outcome of the Basel Committee’s review will play a critical role in shaping the future of banks’ participation in the digital asset ecosystem [14].

Source:

[1] title1 (https://www.reuters.com/legal/government/finance-industry-bodies-call-changes-crypto-rules-banks-2025-08-19/)

[2] title2 (https://www.ledgerinsights.com/iif-gfma-trade-bodies-urge-basel-committee-to-revisit-crypto-rules-again/)

[3] title3 (https://finance.yahoo.com/news/finance-industry-seeks-global-crypto-162858018.html)

[4] title4 (https://www.bloomberg.com/news/articles/2025-08-19/finance-industry-seeks-overhaul-of-global-crypto-rules-for-banks)

[6] title6 (https://www.fastbull.com/news-detail/federal-reserve-says-us-banks-should-serve-crypto-4340365_0)

[7] title7 (https://coindoo.com/fed-governor-says-banks-must-embrace-crypto-or-fade-into-irrelevance/)

[8] title8 (https://www.coindesk.com/policy/2025/08/15/u-s-fed-officially-scraps-specialist-group-meant-to-oversee-crypto-issues)

[10] title10 (https://www.consumerfinancemonitor.com/2025/08/19/federal-banking-regulators-issue-statement-on-banks-crypto-asset-activities/)