Global Banks Watchdog Basel To Rethink Harsh Crypto Regulations

Global Crypto Regulations Shift As Basel Soften 1250% Risk Weight Rule

Global banking regulators are rethinking their toughest-ever Crypto Regulations after key economies rejected them. The Basel Committee now admits its strict framework is outdated, overly punitive, and needs urgent revision.

Basel Committee Concedes Its Crypto Framework Must Change

The Basel Committee on Banking Supervision — the world’s top banking standards authority — has acknowledged that its landmark rules for banks holding cryptocurrency assets were excessively severe and no longer fit today’s market realities.

Chair Erik Thedéen told the Financial Times that regulators must adopt “a different approach” after the US and UK refused to implement the Basel standards. The move marks a rare public concession by the global regulator and highlights deepening divisions among major financial powers over how to treat digital assets.

Source: Crypto India X

The Original Rules: Designed for Bitcoin, Not Stablecoins

• 1,250% Risk Weighting Set the Bar Extremely High: The Basel rules, agreed three years ago and due to take effect on January 1, require banks to apply a 1,250% risk weighting to crypto assets. This means banks must hold $1 in capital for every $1 worth of crypto—effectively making large-scale exposure uneconomical.

• Stablecoins Unfairly Caught in the Same Category: Although the rules were drafted with Bitcoin’s volatility in mind, Basel later extended them to all assets using permissionless blockchains. This unexpectedly pushed widely used stablecoins like USDT and USDC into the highest-risk category, despite their design to maintain a fixed 1:1 value.

US and UK Reject the Rules, Triggering Regulatory Fragmentation

Major jurisdictions took an unprecedented stance against the framework:

• The US Federal Reserve said the crypto risk weights were “not realistic” and confirmed it would not implement them.

• The Bank of England also decided not to follow the rules as they are.

• They were applied in the EU in parts, omitting the most restrictive parts.

• This opposition of major financial centers contradicts the fundamental idea of Basel to have a global consistency of regulation.

Stablecoin Explosion Forces Rethink

Thedéen highlighted that stablecoins have grown into a $300 billion global market, driven by rising institutional use and supportive US legislation known as “Genius.”

He admitted the rapid growth “calls for a different approach,” noting that stablecoins are central to today’s ecosystem and cannot be assessed using outdated assumptions about blockchain risks.

Banks Sound the Alarm Over “Uneconomical” Rules

Financial institutions have long argued that the crypto framework makes it virtually impossible for them to participate in the sector. Banking associations wrote in August, warning that the rules “effectively make it uneconomical for banks to meaningfully participate in the cryptocurrency asset market.” A softer approach could lower capital costs and significantly increase institutional involvement in digital assets.

Consensus Remains Difficult as Regulators Clash on Crypto Risks

Despite acknowledging the need for change, Thedéen said reaching an agreement will be challenging due to “different views” within the committee. Regulators remain divided over the risks posed by permissionless blockchains, the stability of stablecoins, and banks’ exposure to cryptocurrency markets.

He further noted that it has become more difficult to come to a consensus, and disagreements have also surfaced on the issue of climate risk and on the issue of private credit exposure and the wider implementation of Basel III.

Conclusion

This is an indicator of a shift in the cryptocurrency regulation, which is more realistic and less strict rules would open up more participation of banks, yet the greatest challenge to policymakers is to reach an international consensus.