The Bank for International Settlements (BIS) has laid down new rules for banks holding Group 2 cryptocurrencies like XRP. Known as the bank for central banks, the BIS sets standards and fosters cooperation among global financial institutions.
Group 2 assets, as defined by the BIS, include unbacked cryptocurrencies such as XRP, Bitcoin (BTC), and Ethereum (ETH). These assets also encompass certain stablecoins without effective stability mechanisms. The BIS views these as riskier due to their volatility.
Yesterday, the BIS released fresh guidelines on banks’ exposure to these cryptocurrencies. Eri, a notable figure in the XRP community, highlighted the publication on X.
According to the BIS, a bank’s total exposure to Group 2 assets must not exceed 1% of its Tier 1 capital. For those unfamiliar, Tier 1 capital is a bank’s core capital, acting as a primary buffer against financial losses. So, a bank with $1 trillion in Tier 1 capital can hold up to $10 billion in Group 2 assets.
Additionally, no single Group 2 cryptocurrency can make up more than 5% of the total Group 2 holdings. This means if a bank’s total Group 2 holdings are $10 billion, its XRP holdings must not surpass $500 million. This rule also applies to other Group 1 assets.
These limits aim to reduce the risk from the volatile nature of these crypto assets. Cryptocurrencies have seen significant public interest, but recent events like the Terra implosion in May 2022 and the FTX collapse in November 2022 have highlighted their risks.
The BIS’ new requirements will take effect on January 1, 2026. These criteria could reshape how banks handle assets like XRP, Bitcoin, and Ethereum.
XRP: Mainstream Adoption and Regulations
As cryptocurrencies become more mainstream, regulations are tightening. The European Union recently enacted the first part of its MiCA regulations, impacting stablecoins. Major banks are also getting into crypto. Last December, the Basel Committee revealed the crypto holdings of 19 banks worldwide, showing $205 million in XRP.
Despite this, XRP adoption by banks has been slow, partly due to an ongoing lawsuit with the U.S. SEC. Crypto researcher Anderson noted in February that XRP might not see significant adoption by banks until the SEC clarifies its status as a security.
The BIS’ new rules signal a cautious approach as the financial world grapples with the risks and opportunities of cryptocurrencies.