In the wake of this year's banking crisis and the subsequent fallout, the Basel Committee on Banking Supervision contemplated the possibility of requiring banks to disclose their crypto asset holdings. The committee, operating under the Bank for International Settlements, attributed the collapse of several banks in March, including Silicon Valley Bank, Signature Bank of New York, First Republic Bank, and the near-collapse of Credit Suisse (later acquired by UBS), partly to their exposure to cryptocurrencies.
During its meeting held on October 4-5, the committee delved into the factors that may have indirectly contributed to these banking failures. Three key structural trends were identified: the increasing prominence of non-bank intermediaries in recent years, the concentration of crypto assets within a handful of banks, and the escalating digitization of customer transactions, enabling faster movement of funds.
The report particularly underscored the role played by cryptocurrencies in the failure of Signature Bank. It found that Signature Bank's clientele was heavily concentrated in digital asset firms, rendering it vulnerable during the cryptocurrency market downturn of 2022. The report further indicated that the bank's governance issues and insufficient risk management practices hindered its ability to effectively handle liquidity during stressful periods. Signature Bank was subsequently closed by the New York State Department of Financial Services on March 12, although the regulator at the time did not attribute its decision to cryptocurrencies.
The discussions within the committee do not imply immediate plans to revise the Basel framework. In January, the committee already revised the framework to restrict cryptoasset holdings in bank reserves to a maximum of 2%. The report did mention that a consultation paper on disclosing crypto asset risk is set to be released soon. This latest development is reminiscent of the challenges faced by banks in March, with earlier reviews conducted by the Federal Reserve Bank and Federal Deposit Insurance Corporation (FDIC) in April and revisited in August.
