US Senators Push For New Bitcoin, Crypto Capital Rules For Banks

A group of pro-crypto US senators is pushing federal banking regulators to make changes to the capital guidelines for digital assets. They say that current rules are discouraging banks from investing in the crypto space. Because nothing says "sound banking" like holding dollar-for-dollar reserves against an asset that moves 10% before your coffee gets cold.

US Senators Request Change In Crypto Capital Laws

A coalition of US Senators led by Cynthia Lummis, Bill Hagerty, Dan Sullivan, Bernie Moreno, Jon Husted, and Ted Budd wrote a letter to U.S. banking authorities. They requested to establish a new banking framework to regulate banks' digital asset operations amid the CLARITY Act progress. The lawmakers referenced recent guidelines on tokenized securities as an example of the law to be followed when regulating other crypto assets. "Capital treatment should reflect the risk characteristics of the underlying asset, not the technology used to record ownership," the letter said. The senators said that the same should be true for other electronic assets.

The Basel Committee's 2022 crypto capital framework, which gave a risk weight of 1250% to Bitcoin and some other digital assets, was a main point. The senators say that the classification "was not derived from a calibrated assessment of the actual risk profile of digital assets." In other words, someone looked at Bitcoin's volatility and decided to treat it like a particularly spicy loan to a suspicious uncle.

The US Senators also pointed out the application of the law. The letter adds, "A 1,250% risk weight, multiplied by the 8% minimum capital ratio, produces a capital requirement equal to 100% of the exposure." It effectively means that banks will be required to hold at least the same amount of capital as their holdings of digital assets. A bold policy choice, effectively telling banks to treat crypto exposure like a 1:1 reserve requirement — which is one way to encourage innovation, assuming the innovation is in writing strongly-worded memos.

The senators recognized the threats cryptocurrencies pose, but stated that "these risks are measurable." Hence, the US Senators believe these could be mitigated through existing banking risk-management tools. They also challenged the current way of treating crypto, per a post by journalist Eleanor Terrett on X. Lawmakers said that these rules have a narrow view of assets that are traded in transparent and liquid markets all over the world.

The CLARITY Act Factor In Play

The push comes as the CLARITY Act gains momentum in Washington. The bill was recently placed on the Senate calendar. Further, Senator Lummis indicated she hopes to have a vote on the Senate floor before the August recess. Meanwhile, the US Senators also called on regulators to implement changes that would finally let banks engage with digital assets without effectively having to double their balance sheets in cash. One can only hope the regulators read the letter before the next quarterly earnings call.