A group of Republican senators is urging US federal banking regulators to reconsider capital requirements for digital asset activities, arguing current standards effectively discourage banks from participating in crypto markets.
In a 27 May letter to the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), Sen. Cynthia Loomis (R-Wyoming) and five other senators called for a new capital framework for digital assets and criticized international standards that assign some crypto exposures a 1,250% risk weight. They argued recent interagency guidance on tokenized securities established an important principle: capital requirements should reflect the risks of an underlying asset rather than the technology used to record ownership.
The request highlights a new front in Washington's crypto space. While lawmakers and regulators continue working through market structure legislation, attention is increasingly turning to the rules that will determine how regulated institutions can participate in digital asset markets.
Basel framework questioned
At the centre of the debate is the Basel Committee's cryptoassets framework, adopted in 2022, which assigns certain crypto exposures a 1,250% risk weight. The rule forces banks to set aside far more capital for some crypto holdings than they would for most traditional assets, making those activities less profitable.
The Basel Committee on Banking Supervision is the primary global standard-setter for the prudential regulation of banks. The committee, based in the Swiss city of Basel, agrees on standards for bank capital, liquidity and funding. Member authorities are expected, but not required, to implement those standards through local regulation and legislation.
The senators argued the committee's treatment of cryptoassets was not based on a calibrated assessment of actual risks and functions as a "de facto ban" on banks holding digital assets on their balance sheets.
"A 1,250% risk weight bypasses those calibrated frameworks entirely, applying a blunt penalty originally designed for opaque, unrateable securitization tranches to a transparent, globally traded asset with deep derivatives markets, continuous liquidity, and cryptographic auditability," the letter said.
The lawmakers argued that risks should be addressed through existing supervisory tools rather than a blanket penalty applied to an entire asset class.
The timing is notable because the Basel Committee is already reviewing aspects of its cryptoassets framework. Rather than waiting for that process to conclude, lawmakers are urging US regulators to begin working on a domestic approach now.
Race to shape the rules
The push comes as Congress continues debating the CLARITY Act, a bill that would establish rules for digital asset markets.
Last month, the Senate Banking Committee advanced the act after months of negotiations between crypto companies and banking groups over provisions related to stablecoins rewards. Banking industry groups argued the legislation should do more to prevent crypto firms from offering products that could attract deposits away from banks and urged lawmakers to close potential loopholes around yield payments on stablecoins.
On another front, the American Bankers Association and other industry groups asked regulators in April for additional time to provide feedback on the GENIUS Act implementation rules, arguing that key elements of the stablecoin framework remained unresolved and that agencies should coordinate their rulemaking efforts.
The senators' letter highlights that, while banks have sought stricter guardrails for crypto firms operating in areas traditionally dominated by banks, lawmakers are now arguing that existing capital rules make it prohibitively expensive for regulated financial institutions to hold digital assets and compete in those same markets.
Lower capital requirements could make it more economical for banks to hold digital assets on their balance sheet, provide custody services, extend financing backed by crypto collateral and participate in tokenized asset markets.
