Definition ∞ Risk Weight Calculation is a method used by financial institutions to determine the amount of capital required against different assets based on their perceived risk. This calculation assigns a percentage, or “risk weight,” to various assets, with higher percentages indicating greater perceived risk and thus requiring more capital to be held. For digital assets, regulators are establishing specific risk weights to ensure banks maintain adequate capital buffers against potential losses. The objective is to align capital adequacy with the inherent volatility and operational risks of crypto exposures.
Context ∞ The accurate and consistent risk weight calculation for digital assets is a central regulatory challenge, particularly within frameworks like Basel III. Discrepancies in proposed risk weights between different asset types generate ongoing debate among financial institutions and policymakers. The outcome of these discussions will significantly influence banks’ willingness and capacity to engage with the digital asset market.
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