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Banks cutting exposure to crypto, says BIS report

Banks are cutting their exposure to cryptocurrencies.
Banks are cutting their exposure to cryptocurrencies. Photo: Getty

Banks across the globe have decreased their exposure to cryptocurrencies by as much as 46.3% in 2022, according to a new report by the Bank for International Settlements (BIS).

The total exposure of banks to crypto-assets dropped from 61.7% in 2021 to 15.4% in 2022.

This was due to the depreciation of cryptocurrencies throughout 2022, following market contraction after the collapse of the Terra/Luna algorithmic stablecoin in May and the fall of the FTX exchange in November.

Another possible factor mentioned was that in December 2022 new regulations were approved by the Basel Committee on Banking Supervision, which state that a bank's exposure to particular cryptocurrencies must be limited to no more than 2%. The report considers this as another reason for the decline, as banks are possibly reducing their exposure due to the new rules.

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The report deduced that the drop in exposure was also due to a fall in the number of banks that took part in the BIS survey, the sample of banks involved decreased from 182 banks in 2021 to 126 in 2022.

The Basel Committee on Banking Supervision, Basel III Monitoring Report, stated: "As of end June 2022, 17 Group 1 banks reported crypto-asset exposures or crypto-assets under custody, 11 from the Americas, 4 from Europe, and 2 from the rest of the world.

"The total prudential crypto-asset exposures and crypto-assets under custody reported by banks amount to approximately €2.9bn (£2.57bn) and €1.0bn (£0.89bn), respectively."

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Relative to other asset classes, bank exposure to cryptocurrencies is still marginal, and the reported added that "prudential exposures make up only 0.013% of total exposures on a weighted average basis across the sample of banks reporting crypto-asset exposures, while crypto-assets under custody make up only 0.005% of total exposures".

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The report released on Tuesday then described the make-up of the crypto-assets that banks have exposure to, stating that these are primarily bitcoin (BTC-USD), 43%, Coinbase (COIN) shares, 29% and ethereum (ETH-USD), 4%.

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