The Basel Framework comprises international banking regulations establishing capital adequacy standards for financial institutions. Developed by the Basel Committee on Banking Supervision, these guidelines aim to promote financial stability by ensuring banks maintain sufficient capital reserves against various risks. Its principles dictate how traditional banks assess and manage credit, operational, and market risks. Compliance with this framework is mandatory for internationally active banks, shaping their balance sheets and risk management practices.
Context
A significant discussion involves the application of the Basel Framework to banks’ exposures to digital assets, specifically the Basel III standards. Regulators are working to establish appropriate capital treatment for crypto assets, aiming to mitigate potential risks to financial stability. The ongoing debate concerns balancing innovation with prudential oversight, determining how banks can safely engage with digital asset markets while meeting stringent capital requirements.
The Basel Committee's 1250% risk weight for unbacked crypto mandates near-prohibitive capital buffers for banks, fragmenting global prudential standards.
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