The Bank for International Settlements (BIS), often dubbed the “central bank for central banks,” has introduced a new rulebook for how banks can hold XRP and other cryptocurrencies deemed “Group 2” assets. This framework, outlined in a recent BIS publication, marks a significant step towards integrating crypto assets into the mainstream financial system.
The BIS categorizes cryptocurrencies based on perceived risk. Group 2 encompasses popular unbacked coins like XRP, Bitcoin, and Ethereum, alongside less stable stablecoins. The perceived volatility of these assets has led the BIS to impose capital reserve requirements on banks holding them.
These requirements act as a financial buffer, mitigating potential losses if crypto prices plummet. Under the new rules, a bank’s total Group 2 holdings (XRP, Bitcoin, etc.) cannot exceed 1% of its core capital, known as Tier 1 capital. Additionally, no single Group 2 coin can make up more than 5% of a bank’s total crypto holdings. These limitations aim to prevent banks from being overly exposed to the volatile swings of the crypto market, especially after high-profile events like the Terra and FTX collapses in 2022.
The framework is scheduled to take effect in January 2026, potentially impacting how banks interact with cryptocurrencies. This development coincides with a growing trend of regulatory efforts in the crypto space. The European Union’s recent implementation of MiCA regulations, targeting stablecoins, is a prime example.
Interestingly, there have been initial signs of bank interest in crypto assets. A Basel Committee report in December 2023 revealed that 19 banks already held a combined $205 million in XRP. However, wider adoption by banks and institutions might hinge on the outcome of the ongoing lawsuit between Ripple and the U.S. Securities and Exchange Commission (SEC) which classifies XRP as a security. Crypto researcher Anderson believes a public declaration from the SEC stating otherwise could be a game-changer.
The BIS framework reflects a cautious yet progressive approach to crypto integration. It acknowledges the potential of this new asset class while establishing safeguards to manage risks. As the crypto industry matures, we can expect further regulations from global authorities to create a more secure and stable environment for both institutions and individual investors. Striking the right balance between fostering innovation and ensuring financial stability will be key in this ongoing process.
