Big Banks Warn: Basel's Crypto Rules Risk Smothering Innovation

A coalition of global financial industry groups has called for a pause and potential recalibration of the Basel Committee on Banking Supervision’s (BCBS) proposed standards for cryptoassets, citing concerns that the rules, set to take effect in January 2026, could stifle banks’ participation in the evolving digital asset market. The proposed standards include a 1250% risk weighting for cryptocurrencies, meaning banks would need to hold significant capital reserves for each dollar of crypto exposure, making it economically unfeasible for most to engage meaningfully in the space [1]. In an open letter to the BCBS, the groups urged a temporary halt to implementation, emphasizing that the crypto market has evolved since 2022 and that the current framework is overly conservative and misaligned with real-world risk profiles [2].

The letter was signed by prominent trade associations such as the Global Financial Markets Association (GFMA), the Institute of International Finance (IIF), and the International Swaps and Derivatives Association (ISDA), among others. These organizations represent a broad cross-section of the financial sector, including institutional investors, derivatives market participants, and capital market operators [3]. They argue that the capital treatment of cryptoassets under the proposed Basel rules does not reflect the actual risks or potential benefits of the technology, particularly in light of recent advancements in tokenization, stablecoins, and distributed ledger technology (DLT) [4]. The associations have also highlighted the growing adoption of DLT in securities issuance, collateral management, and fund operations, which they say is reshaping traditional financial systems.

Banks are increasingly seeking regulatory clarity in the U.S., where a pro-crypto policy shift under President Donald Trump has led to the enactment of supportive legislation, such as the GENIUS Act for stablecoins, and the easing of rules for banks engaging in crypto-related activities [1]. The financial groups argue that the current Basel framework is not only restrictive but also risks driving innovation and capital flows outside the regulatory perimeter, which could undermine financial stability [2]. In their letter, the signatories call for a more technology-neutral approach to regulation that focuses on the nature of the financial activity and its inherent risks rather than the technology used [4].

The Basel Committee, which comprises regulators and central banks from major financial centers, has no formal enforcement powers but wields significant influence over international banking standards. Its 2022 agreement was shaped by a backdrop of market instability and high-profile failures in the crypto sector. However, the financial groups argue that the crypto market has since matured, and that the new standards fail to account for the sector’s integration with mainstream financial markets [1]. They also point to recent market developments, including a surge in institutional interest in stablecoins and tokenized assets, as evidence that the regulatory landscape requires reevaluation [4].

The call for a pause has drawn attention from central banks and regulators, with U.S. Federal Reserve Vice Chair for Supervision Michelle Bowman acknowledging that the Basel Committee will continue to review the matter. However, she did not specify whether the U.S. would implement the proposed standards as they currently stand [1]. The BIS, which hosts the BCBS, has not yet responded to requests for comment. The outcome of these discussions could have major implications for the future of crypto banking, particularly as financial institutions increasingly see digital assets as a key part of their long-term strategies [1].

Source:

[1] Finance Industry Seeks Global Crypto Rule Overhaul for Banks (https://finance.yahoo.com/news/finance-industry-seeks-global-crypto-162858018.html)

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

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

[4] Joint Trades Call for Recalibration of Cryptoasset ... (https://bpi.com/joint-trades-call-for-recalibration-of-cryptoasset-prudential-standards-and-highlight-dlts-transformative-role-in-capital-markets/)