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Bitcoin, Other Crypto Assets Targeted for Stiff Banking Regulation

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The top global standard setter for banking regulation proposed a strict new rule that would require banks to essentially set aside a dollar in reserves for every dollar of bitcoin they own.

The Basel Committee for Banking Supervision, a group of global central bankers and regulators, announced the plan Thursday in a public consultation about how it intends to treat cryptocurrency assets, which it said had prompted concerns about consumer protection, money laundering and terrorist financing.

“Certain cryptoassets have exhibited a high degree of volatility, and could present risks for banks as exposures increase,” the Basel, Switzerland-based committee said in a statement.

Interest in cryptocurrencies from mainstream financial firms and corporations has surged this year.

Mastercard Inc.

has said it plans to support some cryptocurrencies on its network and

Bank of New York Mellon Corp.

has invested in a cryptocurrency startup. Bitcoin rose 3.8% to $37,776.15 from its Wednesday 5 p.m. ET level.

The committee, which includes the Federal Reserve, European Central Bank and other major central banks, doesn’t enforce rules itself but sets minimum standards that regulators around the world agree upon and implement locally. The secretariat for the committee is based at the Bank for International Settlements, known as the central bank for central banks.

The committee said that banks should apply a 1,250% risk weight to bitcoin, which is “similar in effect to the deduction of the asset from capital.” If a bank holds $100 of bitcoin exposure, it would give rise to risk-weighted assets of $1,250, which when multiplied by the minimum capital requirement of 8% results in setting aside at least $100, the committee said in its statement.

The committee cited the lack of record of these assets and the very high volatility in proposing the rules. The capital requirements would put bitcoin and other coins on par with other risky assets, such as ones for which the bank doesn’t have full information or has very large investments in companies.

The committee proposed less-stringent capital requirements for crypto assets that meet certain conditions, such as tokenized traditional assets and stablecoins. These type of crypto assets are often pegged to the value of a mainstream currency such as the U.S. dollar, and so are theoretically less volatile.

These are eligible for treatment under the existing Basel rules, while bitcoin would be subject to the “new conservative prudential treatment.”

Banks have until Sept. 10 to respond to the committee’s proposals. Central-bank digital currencies aren’t included in the consultation.

China’s recent warning on cryptocurrency sent the market in a tailspin. WSJ’s Aaron Back explains why the recent shake-ups in the value of bitcoin, dogecoin, ether and other cryptocurrencies may point to obstacles in mainstream acceptance. Photo: Dado Ruvic/Reuters

Separately, the

Swiss National Bank,

the Banque de France and the Bank for International Settlements said Thursday that they will conduct an experiment in transacting in central-bank digital currencies across borders.

The experiment will involve the exchange of a central-bank digital euro and a central-bank digital Swiss franc on one platform. Transactions will be settled between banks based in France and Switzerland. Unlike private cryptocurrencies like bitcoin, central-bank digital currencies would, if implemented, be officially sanctioned, digital versions of money whose value would match a country’s existing currency.

The experiment will involve commercial banks including

UBS Group AG

,

Credit Suisse Group AG

and

Natixis SA,

as well as SIX Digital Exchange and fintech firm R3. The trial is exploratory and doesn’t mean that the Swiss National Bank or the Banque de France plans to issue wholesale central-bank digital currencies, the banks said in a statement.

Bitcoin, Dogecoin, Ethereum: Cryptocurrency Markets

Write to Simon Clark at simon.clark@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com

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