The surge of stablecoins triggers global regulatory shock: Basel banking encryption rules face major overhaul, with the US leading the demand for exemptions for USDC and USDT.

The rapid development of stablecoins has triggered strong opposition from the United States, and global regulators are discussing reforms to the bank crypto assets holdings rules originally set to take effect next year. These standards, envisioned by the Basel Committee on Banking Supervision at the end of 2022, impose heavy capital burdens on banks' crypto assets and are seen as a signal hindering institutional adoption. The United States is leading calls to revise the standards, arguing that they are incompatible with the industry's development, including stablecoins. However, some countries/regions, including the European Central Bank (ECB), have not yet committed to timely implementation of the existing rules.

Regulatory Framework Conflicts: The Rapid Development of Stablecoins Challenges Existing Basel Standards

The banking crypto assets holdings standards set by the Basel Committee at the end of 2022 seem outdated and inappropriate after stablecoins receive regulatory approval and are applied on a large scale.

• High capital requirements: According to Basel standards, the risk weight of banks holding permissionless encryption assets (such as stablecoins like USDC and USDT that operate on public blockchains) can be as high as 1,250% of the exposure, far exceeding that of other high-risk assets (such as certain venture capital at 400%).
• U.S. Leads Reform: Since the passage of the Genius Act in the U.S. and the regulation of stablecoins, the use of stablecoins in payments has surged. The U.S. is therefore leading calls to revise the Basel standards, arguing that its risk capital requirements do not align with the evolution of stablecoins in regulation and practical application.
• Regulatory classification is unfair: The current Basel standards impose capital charges on stablecoins unrelated to licensing that are the same as those for highly volatile assets like Bitcoin, which seems unreasonable in the United States.

Implementation Resistance and Calls for Revision: Divergent Positions of Regulatory Agencies in Various Countries

Due to the inapplicability of the Basel standards, major jurisdictions around the world have encountered significant resistance in timely implementation, and there are also discrepancies in the positions of regulators.

• Delayed implementation: Major global jurisdictions, including the United States, the United Kingdom, and the European Union, have not yet committed to implementing the rule on time.
• The European Central Bank (ECB) is cautious: the ECB tends to implement existing measures first and consider reviews later, which is different from the stance of some countries that prefer to conduct reviews before widespread implementation.
• The EU's flexible framework: The EU has introduced a crypto framework through its latest banking capital scheme, allowing stablecoins to have the same capital treatment as their underlying assets. Since stablecoins are typically backed by low-risk assets such as cash and short-term U.S. government debt, this significantly alleviates the capital burden on banks.
• The necessity of international alignment: Asian financial centers such as Singapore and Hong Kong are facing similar challenges. Singapore has announced a one-year delay in implementation due to the need for global alignment, while Hong Kong has proposed to reduce capital requirements for licensed stablecoins.

Conclusion

The explosive growth of stablecoins and the clarity of their regulatory status are directly impacting the cryptocurrency holdings rules of global banking. The U.S.-led Basel rule revisions reflect the inherent contradiction between regulatory speed and innovation. If adjustments are not made in a timely manner, stringent capital requirements will continue to hinder banks from widely adopting stablecoins, delaying the integration of decentralized finance and traditional finance. In the future, the Basel Committee's qualitative assessment of stablecoin risks will be key to determining the scale of banks' crypto operations.