A coalition of Republican senators has formally requested US financial regulators to revise the stringent capital standards imposed on banking institutions engaging with digital assets, arguing the current rules act as a barrier to innovation.
Challenging the ‘De Facto Ban’ on Crypto Custody
Led by Senator Cynthia Lummis, the group sent a detailed letter to key regulatory figures, including Federal Reserve Vice Chair for Supervision Miki Bowman, FDIC Chairman Travis Hill, and Comptroller of the Currency Jonathan Gould.
While the lawmakers praised recent regulatory updates that clarified the treatment of tokenized securities, they insisted that more comprehensive action is required to establish fair crypto capital requirements for on-balance sheet digital assets.
“Any proposed capital treatment of on-balance sheet digital asset activities should accurately reflect the opportunities and risks of digital assets — and be based on, to the extent possible, a technology-neutral approach that gives banks the authority to participate meaningfully in digital asset markets,” the lawmakers wrote.
Key Metrics of the Regulatory Dispute
- Punitive risk weight challenged: 1,250%
- Number of signing Senators: 6
- Primary legislative vehicle: CLARITY Act
The Basel Committee Controversy
At the heart of the senators’ grievance is the Basel Committee on Bank Supervision’s long-standing guidelines. These rules assign a massive 1,250% risk weight to unbacked crypto assets. According to the coalition, this extreme requirement was not derived from a calibrated, objective assessment of the actual risk profile of digital assets.
Under these conditions, traditional banks are effectively locked out of offering custody services, leaving the market highly concentrated among non-bank entities.
The Race to Pass the CLARITY Act
The push for regulatory clarity coincides with the upcoming Senate debate on the CLARITY Act. This landmark bill aims to define how federal agencies, including the SEC and CFTC, oversee the digital asset ecosystem. Crucially, the current draft allows banks to leverage blockchain technology for payments, lending, and custody.
Senate leaders are eager to advance the bill before the upcoming November midterms to prevent the legislation from stalling and requiring a complete reintroduction in the next congressional session.
Frequently Asked Questions (FAQ)
Why are current bank capital rules for crypto considered punitive?
Under Basel guidelines, the 1,250% risk weight requires banks to hold capital reserves equal to or exceeding the value of the digital assets they hold, making custody services financially unviable.
What is the CLARITY Act?
The CLARITY Act is a proposed US Senate bill designed to establish clear regulatory jurisdictions for crypto assets and grant banks the authority to offer digital asset services.
Which regulators received the letter?
The letter was sent to leadership at the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
