Fed to Vote on Basel III Rules Impacting Bank Crypto Holdings

The Federal Reserve is poised to vote next week on a proposal to implement the final phase of Basel III capital standards for large U.S. banks, a move that could significantly influence how financial institutions handle Bitcoin and other cryptocurrencies on their balance sheets. The rulemaking, announced by Fed Vice Chair for Supervision Michelle Bowman, will address risk-weighting guidelines from the Basel Committee on Banking Supervision and open a 90-day public comment period afterward.

Under the current Basel framework, cryptocurrencies like Bitcoin fall into Group 2 assets, which are subject to stringent capital requirements. Most exposures, classified as Group 2b, carry a 1,250 percent risk weight. This calibration requires banks to hold capital equal to the full value of the exposure, after applying the standard eight percent minimum capital ratio, making direct holdings or related activities economically challenging. For instance, a bank with $100 billion in Tier 1 capital could maintain Group 2 exposures below about $1 billion without triggering harsher penalties; exceeding two percent of Tier 1 capital would apply the full 1,250 percent weight to all such assets.