Six senators urge regulators to rethink 1,250% Bitcoin rule

Six U.S. senators asked the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency to reassess a Basel framework that assigns certain crypto exposures, including bitcoin, a 1,250% risk weight. The request was made in a May 27 letter that the senators disclosed publicly on June 4.

The letter explains how the Basel math works: a 1,250% risk weight multiplied by the 8% minimum capital ratio produces a capital requirement equal to 100% of the exposure, effectively requiring banks to hold capital roughly equal to the value of the bitcoin they hold or service, the senators wrote.

Under the Basel framework, exposures that fail specified safeguards can be placed in a higher-risk bucket that triggers the 1,250% weight. Unbacked assets such as bitcoin typically fall into that category when they do not meet the framework’s protections.

The lawmakers — Cynthia Lummis of Wyoming, Dan Sullivan of Alaska, Bill Hagerty of Tennessee, Bernie Moreno of Ohio, Ted Budd of North Carolina and Jon Husted of Ohio — asked regulators to consider asset-level risk when setting capital requirements rather than applying a blanket high-risk weight to certain crypto exposures.

The senators praised recent guidance that treats eligible tokenized securities the same as traditional securities for capital purposes and asked regulators to develop a new capital framework for digital asset activities that reflects the underlying asset and controls.

Regulators have taken steps in recent months that the letter referenced. In March, the Fed, FDIC and OCC clarified that eligible tokenized securities generally receive the same capital treatment as their traditional counterparts. The agencies have also rescinded or revised supervisory expectations that had required banks to obtain advance approval for some crypto-related activities.

An industry policy group argued in a recent paper that the 1,250% risk weight was designed for opaque securitization tranches and is not appropriate for bitcoin, which it described as trading in transparent global markets with measurable custody and market risks. The group urged U.S. regulators to help shape Basel’s targeted review to avoid importing a standard that could limit regulated bitcoin services.

Banking industry observers say the current capital calculation may affect how banks approach custody, balance-sheet holdings, settlement services and other bitcoin-related offerings. Under the present treatment, banks taking on bitcoin exposures could be required to hold capital roughly equal to the value of those exposures, which would affect the economics of providing regulated bitcoin services.