What is Dogecoin and why is it mentioned in banking proposals?

Dogecoin is a cryptocurrency originally created as a joke. Its mention highlights concerns that banks might lend against such speculative, non-asset-backed digital tokens.

What was the Basel Committee's previous stance on crypto exposure for banks?

The Basel Committee previously categorized crypto separately, requiring full equity funding and limiting exposure to a small percentage of a bank's capital.

What are the main risks of banks lending against cryptocurrencies like Dogecoin?

The primary risk is increased financial system instability due to leveraged bets on volatile, non-productive assets, potentially leading to a crisis.

Home / Business and Economy / Crypto Risks Loom as Banks Eye New Rules

Crypto Risks Loom as Banks Eye New Rules

6 Jan

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Summary

Banks may soon lend against speculative cryptocurrencies.
New proposals could expand crypto exposure for major banks.
Concerns raised about financial system stability with leveraged crypto bets.

Crypto Risks Loom as Banks Eye New Rules

The finance industry is pushing for revised global banking standards that could allow major banks to lend against speculative cryptocurrencies. Current regulations, established by the Basel Committee, previously contained crypto exposure by requiring banks to fully fund it with equity and limit it to a small capital percentage. This approach proved effective in 2022 when crypto prices crashed, with banks experiencing minimal losses.

However, the landscape is shifting as crypto regains prominence and industry groups advocate for more leniency. They argue that certain cryptocurrencies share liquidity and volatility profiles with major stocks and currency pairs. Critics counter that this ignores the fundamental difference between assets tied to real cash flows and digital tokens backed by nothing.

The proposed reforms could enable banks to offer loans backed by assets like Dogecoin, a cryptocurrency created as a joke. This expansion of leverage into the crypto market poses a new threat to the stability of the entire financial system, potentially impacting individuals far removed from the cryptocurrency sphere.