Banks’ direct exposure to crypto less than 1% of total – BIS report

Global banks’ exposure to crypto-assets remains minuscule and mostly declined during 2022, the Bank for International Settlements (BIS) said in its latest BASEL III Monitoring report.

According to the report, only 17 Group 1 banks reported exposure to crypto-assets out of a total of 181 banks that are part of the BASEL III monitoring sample. Of the 17, 11 are based in the Americas, four are in Europe, and two are based in other parts of the world. The report did not specify the banks in question.

These lenders’ total prudential exposure to crypto-assets totaled €2.9 billion as of the end of June 2022, while their crypto-assets under custody totaled €1.0 billion.

Prudential exposures are defined as “direct crypto-asset exposures, including synthetic or derivative exposures, that give rise to credit or market RWA.” This includes a bank directly owning; crypto; owning crypto-related stocks like Coinbase; trading crypto or crypto-related assets and instruments; and clearing crypto-related derivatives.

These banks’ prudential crypto-asset exposures only make up 0.013% of their total exposures, while crypto-assets under custody only make up 0.005% of the total exposures. When compared to the entire 181 bank sample size, the percentages fall to 0.003% and 0.001% of total exposures, respectively.

Compared to the end of June 2021, banks’ crypto-assets under custody fell 66%, while their prudential exposure to crypto-assets grew 30%.

Lack of oversight

The report said that roughly 40% of the decline in crypto-assets under custody was because two banks did not report their crypto exposures in 2022, while the rest of the decline can be attributed to the general decline in the value of crypto compared to the 2021 bull market. It added that the two banks that did not participate in the monitoring exercise “specialized in crypto-asset activity.”

Clearing, trading and Bitcoin

The majority of banks’ prudential exposure comes from clearing and trading activity, which make up 41% and 32% of total prudential crypto-asset exposure, respectively. Meanwhile, 10% of the exposure comes from banks’ holdings, while the remaining comes from lending to companies with crypto-asset exposure and other activities.

Bitcoin is the primary underlying asset of banks’ prudential crypto-asset exposure and makes up 43% of the total. Comparatively, Ethereum only makes up 4%, while equities and debt issued by Coinbase make up 29% of the underlying assets.

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