Major Banks Push Back Against 'Punitive' Crypto Rules — Here's Why This Could Unlock Billions in Institutional Money

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The crypto revolution is hitting a regulatory roadblock, and some of Wall Street’s biggest players are fighting back. A coalition of major finance industry groups is calling for sweeping changes to upcoming banking regulations that they say would effectively lock traditional banks out of the booming cryptocurrency market.

The Battle Over Basel’s Crypto Standards

At the center of this dispute are new standards crafted by the Basel Committee on Banking Supervision in 2022, designed to govern how banks manage and disclose risks around cryptocurrency exposure. These rules, set to take effect in January , have drawn fierce criticism from industry heavyweights including the Global Financial Markets Association, the Institute of International Finance, and the International Swaps and Derivatives Association.

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In a strongly worded open letter to the committee, the groups argued that the proposed regulations are outdated and overly conservative, failing to account for how dramatically the crypto landscape has evolved since their creation.

“The Cryptoasset Standard’s restrictive qualification standards, combined with otherwise punitive market and credit risk capital treatments, effectively make it uneconomical for banks to meaningfully participate in the cryptoasset market,” the letter stated.

Why This Matters for Crypto’s Future

The timing of this pushback is no coincidence. The cryptocurrency market has exploded in recent years, with digital asset prices reaching record highs and becoming increasingly integrated with traditional financial markets. While crypto remains a relatively small slice of the overall financial system, its rapid growth has caught the attention of institutional investors and major banks eager to capitalize on the trend.

The regulatory environment has also shifted dramatically, particularly in the U.S under President Donald Trump‘s pro-crypto administration. U.S. regulators have already made it easier for banks to engage in cryptocurrency-related activities this year, creating momentum for broader institutional adoption.

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The Stakes for Traditional Banking

For major banks, the current Basel standards represent a significant missed opportunity. The regulations would require such hefty capital reserves and risk management procedures that most institutions would find crypto operations unprofitable. This effectively sidelines some of the world’s largest financial institutions from a market that continues to grow and mature.

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The industry coalition is asking the Basel Committee to “temporarily pause” implementation of the new standards while seeking fresh information and considering potential modifications, Reuters reported. Given that the committee’s members typically apply its standards to international banks within their jurisdictions, any changes could have far-reaching global implications.

Learning from Past Mistakes

The push for strict crypto regulations wasn’t arbitrary. A series of spectacular collapses at major crypto companies in 2022—including the high-profile FTX exchange failure—left millions of investors with massive losses and exposed widespread misconduct throughout the industry. These events sparked calls for comprehensive regulation to protect consumers and maintain market stability.

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However, industry advocates argue that the proposed rules overcorrect for these past failures, potentially stifling innovation and legitimate business opportunities in an evolving market.

What’s Next

The Basel Committee has yet to respond to the industry’s concerns. With the January implementation date looming, financial institutions are watching closely to see whether regulators will bend to industry pressure or maintain their conservative stance.

For crypto investors and the broader market, the outcome could determine whether traditional banking giants become major players in digital assets—or remain largely on the sidelines of the next phase of financial innovation.

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This article Major Banks Push Back Against 'Punitive' Crypto Rules — Here's Why This Could Unlock Billions in Institutional Money originally appeared on Benzinga.com

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