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The proposed tough capital treatment of banks’ exposures to crypto assets represents a positive for the banking sector, says Moody’s Investors Service.

Last week, the Basel Committee on Banking Supervision (BCBS) unveiled a proposed approach to setting capital requirements for banks’ crypto holdings.

The proposal envisions a two-tier treatment of digital assets, with tokenized forms of traditional assets subject to conventional capital requirements and other forms of crypto, such as Bitcoin, subject to a 1,250% risk weight.

“If the paper’s proposals were enacted, it would be credit positive for banks,” said Moody’s in its report. “It provides a simple yet conservative framework to protect banks’ creditors from an increase in exposure to crypto assets.”

While banks’ exposure to crypto assets is currently minimal, the Basel Committee is worried that the growth of crypto could pose a risk to banks and to financial stability.

“Banks’ increased exposure to crypto assets without adequate safeguards would raise risks to their creditors as well as systemic risk,” Moody’s said.

“In addition to the assets’ credit, market, and liquidity risks, banks have operational (including fraud and cyber) risks, risk related to money laundering and financing of illegal activities, as well as legal and reputational risks,” the report said.

Moody’s noted that the proposal wouldn’t change the regulatory treatment of crypto assets under the leverage and liquidity rules.

“However, it requires that banks ensure that risks not captured under the Basel framework, such as unique risks attributable to the underlying technology, are assessed, managed and appropriately mitigated on an ongoing basis,” the report said.

Moody’s said the proposal also “emphasizes the need for banks to disclose information regarding crypto asset exposures on a regular basis.”