Prudential Capital Rules

Definition ∞ Prudential capital rules are regulatory requirements that mandate financial institutions hold a certain amount of capital to absorb potential losses and remain solvent. These rules aim to protect depositors, maintain financial system stability, and prevent bank failures. They specify the types of assets that qualify as capital and the risk-weighting applied to various exposures. In traditional finance, these are key to managing systemic risk.
Context ∞ The current discussion surrounding prudential capital rules intersects with digital assets as regulators assess how traditional financial institutions should account for and hold cryptocurrencies. Banks and other regulated entities face uncertainty regarding the capital treatment of their digital asset holdings and exposures. A critical future development involves international bodies and national regulators establishing clear and consistent prudential standards for digital assets, enabling safer institutional participation in the crypto market.