Pierre Rochard, CEO of The Bitcoin Bond Company, has warned US banking regulators that their wide-ranging Basel III capital change leaves unresolved how Bitcoin-related business should be treated, and the loophole, he said, could create legal risks and affect how much capital banks must hold relative to assets.
In formal comment presented on March 29 to the U.S. Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, Rochard concluded that the agencies cannot finalize regulations that effectively determine capital treatment for Bitcoin (BTC)-related activities without a clear explanation of the framework and evidence behind that treatment.
Regulators March 19 suggestionsa package that would comprehensively overhaul the existing capital framework of U.S. banks made no mention of Bitcoin, cryptocurrencies or digital assets. It covers credit risk, market risk, operational risk and counterparty exposure for the largest US banks, but leaves uncertainty as to how the existing categories apply to BTC, credit, deposit and derivatives portfolios.
The difference matters because Basel already exists imposes tough capital treatment for certain unsecured cryptocurrency exposures, but the U.S. proposals do not say whether this framework will apply to Bitcoin-related activities. For banks, this means that the economics of deposits, loans, derivatives and direct equity participation remain unresolved.
Rochard argued that regulators cannot leave the issue unresolved and said that a final rule that quietly imposes (or preserves) equity treatment for Bitcoin-related activities without explicit explanation could face legal loopholes.
Rochard presses regulators on treatment of Bitcoin
He pointed to the Basel Committee’s crypto asset framework, known as SCO60, which assigns a 1,250% risk weight to unsecured crypto assets such as Bitcoin. According to Rochard, U.S. regulators need to clarify whether they intend to adopt the standard, apply elements of it selectively, or rely on existing national capital categories.
Related: A group of Bitcoin supporters fighting against the “toxic” treatment of cryptocurrencies in Basel
Rochard noted that these same agencies have recently been outspoken about other digital properties. On March 5, they issued an FAQ on tokenized securities, stating that eligible tokenized securities should generally be treated the same in terms of capital as their non-tokenized counterparts and that the capital framework is “technology neutral”, giving banks clear guidance in this regard. In contrast, there is still no comparable explanation of how exposures to Bitcoin should be treated.
Without this clarity, banks would have to interpret how the rules apply to direct Bitcoin holdings, Bitcoin-backed loans, custody services and derivative exposures, increasing uncertainty across the industry.
Before the proposal’s publication, some analysts expected that the renewed proposal could ease capital requirements and potentially unlock liquidity for Bitcoin activities.
“The fiat system should stop sabotaging itself,” Rochard said in his comment on X. “Bitcoin banking rules would improve banks’ net interest margins and lower interest rates for borrowers.”
Cointelegraph reached out to Rochard for comment but did not receive a response via publication.
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