Old Basel rules keep crypto costly for banks

Banks in the US, UK and Europe have a legal path to issue stablecoins, custody Bitcoin and settle tokenized funds, but Basel’s cryptoasset standard SCO60 assigns unbacked crypto to a punitive 1,250% risk weight from Jan. 1, 2026. That weight, combined with Basel’s 8% minimum capital ratio, produces an effective requirement of roughly one dollar of equity for every dollar of Bitcoin on a bank’s books.

SCO60 groups crypto exposures by type and risk. Group 1a covers tokenized versions of traditional assets and Group 1b covers stablecoins that meet strict reserve and redemption tests; both can be treated like conventional equivalents. Group 2 covers assets that do not meet those tests and splits into 2a for assets liquid enough to hedge and 2b for the least liquid or riskiest tokens. The 1,250% weight sits in Group 2b.

The standard blocks netting of long and short positions for many crypto exposures, so banks must hold capital on gross positions. A $100 million Bitcoin holding in Group 2b therefore consumes roughly $100 million of capital after the 8% calculation, before supervisory buffers and add-ons. SCO60 also sets a crypto-specific exposure cap: Group 2 holdings must remain below 1% of Tier 1 capital, and if a bank crosses 2% every Group 2 position can be reclassified into Group 2b and lose recognition of hedging.

Industry groups including ISDA and the Global Financial Markets Association told regulators in 2025 that parts of SCO60 are overly conservative and could limit bank activity in tokenized markets. The Basel Committee opened an expedited review of targeted sections in November 2025, reported progress in February and May 2026, and has promised further updates later in 2026.

Banks have expressed interest in fee-based, light-balance-sheet services such as custody, fund administration, stablecoin reserve management, tokenized-deposit settlement, collateral services and market making in regulated products. Heavy capital charges on inventory, financing or reserve positions increase the cost of balance-sheet-intensive activities and affect whether those businesses meet banks’ internal return requirements.

Stablecoins receive special attention because similar economic instruments can appear on balance sheets in different legal forms. Basel’s rules require separate capital treatment for redemption risk, reserve composition, liquidity and enforceability for a fully reserved payment token, a bank-issued tokenized deposit and a tokenized money-market fund. The US executive branch rejected SCO60’s fixed 1,250% weight in Executive Order 14178 and a July 2025 federal report, describing it as anti-innovation and anti-competitive and urging a risk-based approach. European authorities have incorporated Basel’s treatment into CRR3 capital rules and are drafting technical standards.

Tokenized real-world assets on public chains have passed $16 billion, with government securities the largest share. A tokenized Treasury that fails a Group 1 technicality could fall into Group 2b and face the same capital treatment as speculative tokens. The result is potential fragmentation: the same tokenized asset can carry different capital charges across jurisdictions, and global banks may design separate digital-asset products for different markets. The Basel review and national adoption choices will determine how capital rules and legal permission align for bank crypto activities.