Banks will have to make public their exposure to crypto under a plan mentioned Thursday by the Basel Committee on Banking Supervision.
A consultation paper will be “published soon” and will propose “a set of disclosure requirements related to banks’ cryptoasset exposures,” the committee said.
The proposals will complement the prudential standard for crypto exposures published in December 2022.
In a separate report published Thursday, the committee put some onus of this year’s regional banking crisis, dubbed “the most significant system-wide banking stress since the Great Financial Crisis in terms of scale and scope,” on crypto banks’ exposure to the then-volatile crypto market.
Crypto was one of three structural trends that “may have indirectly contributed to some of the fragilities” in the sector early this year, along with the growth of non-bank financial intermediation and the ongoing digitalization of finance.
“Cryptoassets’ market valuation grew from about $16 billion six years ago to nearly $3 trillion in 2021 before falling back to a valuation of just over $1 trillion at the beginning of March 2023,” the committee wrote. “While the global banking system’s direct exposures to cryptoassets are limited — amounting to just under €4 billion, or 0.004% of total exposures as of end-June 2022 — they are concentrated in a small number of banks.”
Signature Bank, one of 2023’s earliest banking sector casualties, “failed to understand the risk of its association with and reliance on crypto industry deposits or its vulnerability to contagion from crypto industry turmoil that occurred in late 2022 and into 2023,” the committee mentioned.
“Management did not acknowledge that its exposure to the crypto industry might entice other customers to pull or reduce their own deposits” as news of the crypto winter raged on, the committee said.
A month after Signature’s closure, the Federal Deposit Insurance Corp. placed blame squarely on poor management. And regulators were at odds with who to blame, with Securities and Exchange Commission Chair Gary Gensler chalking bank failures including Signature up to their crypto ties. Meanwhile, New York State Department of Financial Services Superintendent Adrienne Harris blamed Signature’s failure on depositor outflows.
