The Bitcoin Policy Institute (BPI) plans to lobby the US Federal Reserve to alter its classification of Bitcoin. This move comes as the Fed prepares to finalize rules for how banks will implement international asset risk-weighting guidelines.
Conner Brown, BPI's managing director, stated the institute will submit a public comment to ensure regulators accurately treat Bitcoin. The Federal Reserve recently announced its intention to propose new rules for US banks regarding risk-weighting guidance from the Basel Committee on Banking Supervision.
Brown highlighted that Bitcoin is currently classified as a 'toxic asset' under the Basel framework, carrying a 1,250% risk weighting. This is significantly higher than most other asset classes. In contrast, cash, gold, and government debt have a 0% risk weight.
Federal Reserve Vice Chair for Supervision Michelle Bowman indicated the agency will propose rules to implement the final phase of Basel in the US, aiming for more efficient regulation and stronger banks that support economic growth while ensuring safety and soundness.
The stringent 1,250% capital requirement mandates that banks hold approved collateral at a 1:1 ratio for any Bitcoin on their balance sheets, making it a costly asset to hold. The BPI argues this is the "most punitive classification" and a "category error" by the Basel Committee, making it exceedingly difficult for banks to offer financial services to Bitcoin-related entities.