The Basel Committee on Banking Supervision is considering introducing mandatory disclosure requirements for banks’ cryptocurrency assets, as the organization’s analysts believe the concentration of digital assets was one of the factors that led to the collapse of several banks in March.
Members of the Basel Committee on Banking Supervision, which operates under the Bank for International Settlements (BIS), examined the reasons behind the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank. According to the committee’s report, crypto-assets of these banks played a big role in their bankruptcy.
The committee members argue that three structural trends indirectly contributed to the banks’ collapses:
- the growing role of non-bank intermediaries;
- the concentration of crypto-assets in a small number of banks;
- the ability of customers to move their funds faster due to increased digitalization.
The report specifically highlights the role of cryptocurrencies in the collapse of Signature Bank. Members believe it was the bank’s digital asset clients that put it in a vulnerable position. And insufficient risk management practices led to the fact that the bank’s executives were unable to effectively operate its liquidity in times of stress.
Signature Bank was closed by the New York State Department of Financial Services (NYDFS) on March 12, 2023. However, the regulator stated that the reason for this decision was not due to the bank’s cryptocurrency assets, but only to prevent additional bank raids after SVB’s bankruptcy.
The committee will conduct a series of consultations and determine disclosure requirements related to banks’ cryptocurrency assets, the accompanying statement said. The consultation paper will be published shortly.
Several closures of crypto-friendly banks have been called a crackdown on the crypto industry, and the sector’s destabilization has put at risk about 200 banks in the U.S. alone.
