At the end of 2022, bank customers held cryptocurrency positions of around €91 billion ($96 billion), according to the Basel Committee. Yesterday, it released data on banks’ capital ratios for the second half of 2022. However, banks’ direct exposures to cryptoassets and digital asset custody have declined significantly and were already minimal. A combination of Basel Crypto Rules And regulatory friction have an impact.
The $96 billion corresponded to the “other risks” figure under the Basel rules, which mainly includes positions on behalf of clients. Seven banks in the Americas made up the entire amount. No other bank in the world has reported this category. Previous periods show no “other exposure,” implying that banks have radically increased their customer activity.
It is difficult to compare from one period to another because the banks included in the figures may not be the same. And data collection on the subject is still in its infancy. That said, we only compared June 2022 and December 2022 and the number of reporting banks in each region was the same.
Unsurprisingly, banks are not touching “alt coins”. Bitcoin-related exposures are worth $57.5 billion and Ethereum-related products are worth $36.5 billion. The remaining balance consisted of products related to Ethereum Classic.
Direct exposure to banks declines sharply
In contrast, banks’ direct exposure to cryptoassets was only €343 million globally for 13 banks, a drop of 69%. And more than a third of that amount was not cryptocurrency. Two banks from the rest of the world (probably in Asia) held €125 million in tokenized securities. Tokenized assets accounted for 98% of exposure to the rest of the world, the only region that did not fall sharply.
The number of European banks directly exposed to crypto has fallen from four to two and from over 300 million euros to negligible figures.
There were seven reporting banks in the Americas in both periods and exposure fell 70% in the last six months to €200 million.
The retention of banking digital assets is also decreasing
Preservation of digital assets fell 40% in Asia, with two banks reporting for both periods. Europe fell slightly, but the Americas reported no crypto assets in custody.
At the end of March 2022, the American SEC introduced a accounting rule which required all cryptoassets in custody to appear as an asset and a liability on the balance sheet. Assets in custody belong to clients, so they are generally are not included in the balance sheet.
American banks interpreted this as requiring capital be set aside according to the Basel rules – even if the international Basel cryptography rules do not require it.
In a recent Senate hearing, SEC Chairman Gary Gensler said the impact of Basel’s treatment was not the SEC’s intention. Decisions on this matter rest with banking regulators.
