A coalition of Republican senators is actively challenging the existing capital rules for digital assets in the United States. They contend that the current framework, particularly the 1,250% risk weight mandated by the Basel Committee, effectively bars banks from engaging with Bitcoin, despite a growing push for institutional adoption.
The Stifling Hand of Basel: A “Backdoor Ban” on Bitcoin
At the core of the dispute is the 1,250% risk weight applied to assets like Bitcoin under Basel standards. Senators argue this rule functions as a de facto ban on banks holding crypto on their balance sheets.
This weighting means a bank holding $100 million in Bitcoin must set aside at least $100 million in capital to cover that exposure. For banks with higher internal capital targets, perhaps 12%, the required capital could climb to $150 million, making such operations economically unfeasible.
“A bank can be legally authorized to hold Bitcoin and still be structurally prevented from doing so by a capital charge that makes the position uneconomic before the first trade,” the senators’ letter states.
They addressed their concerns in a letter to Federal Reserve Vice Chair for Supervision Michelle Bowman, FDIC Chair Travis Hill, and Comptroller of the Currency Jonathan Gould, urging the agencies to construct a new capital framework for on-balance-sheet digital asset activities.
Regulators’ Shifting Stance vs. Unchanged Capital Burden
Notably, the three regulators in question—the Fed, FDIC, and OCC—have shown increasing permissiveness towards crypto assets since early 2025. The OCC reaffirmed that national banks may engage in crypto custody and stablecoin-related activities. The FDIC rescinded its prior notification requirement, and the Fed withdrew its guidance on crypto assets, framing the move as support for innovation.
However, despite these steps, the Bitcoin capital question remains untouched, creating a paradox where banks are granted permission to participate but face prohibitive financial barriers.
The Tokenized Securities Precedent
The senators found a strong argumentative foothold in a March 2026 interagency FAQ on tokenized securities. This guidance from the Fed, FDIC, and OCC held that eligible tokenized securities should generally receive the same capital treatment as their non-tokenized equivalents, and that the technology used should not determine capital allocation.
“If a tokenized Treasury is treated like a Treasury because the underlying risk profile governs its treatment, the logic should extend to Bitcoin,” the senators argued, emphasizing that Bitcoin’s volatility and operational risks are measurable and can support a calibrated framework.
The Path Forward: Calibrated Risk Weights and Market Impact
The Basel Committee agreed in November 2025 to expedite a targeted review of elements of its cryptoasset standard, reporting progress in February 2026. Basel Chair Erik Thedéen has indicated that global crypto rules for banks need reworking after the US and UK declined to implement the current framework.
If regulators respond by proposing a calibrated framework for liquid digital assets instead of the blanket Basel weight, the capital required on $100 million of Bitcoin exposure could fall from the current $100 million–$150 million range to something closer to $8 million–$36 million under a 100%–300% risk-weight band.
Such a revision would make bank market-making, custody, prime brokerage, and structured crypto products viable lines of business. This would enhance institutional liquidity and foster greater bank participation in the digital asset market.
Without changes, direct Bitcoin exposure will continue to route around bank balance sheets, flowing to non-bank institutions and ETF wrappers, as already seen with the significant outflows from US-traded spot Bitcoin ETFs.
FAQs on Bank Digital Asset Regulation
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What is the main issue senators are raising?
Senators are challenging the 1,250% risk weight from the Basel Committee for crypto assets, arguing it makes holding Bitcoin uneconomical for banks, even as US regulators permit such activities.
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What is the 1,250% risk weight?
This rule requires banks to hold capital equal to 100% of their exposure to Bitcoin. For example, $100 million in Bitcoin requires $100 million in capital, making it extremely costly and unprofitable.
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How would a calibrated framework change things?
A calibrated framework, perhaps with a 100%–300% risk-weight band, would significantly lower capital requirements, making bank operations with Bitcoin economically viable and encouraging institutional participation.
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Are US regulators generally against crypto?
No, the Fed, FDIC, and OCC have recently taken steps to allow banks to engage with crypto assets, but they have not yet addressed the high capital requirements that prevent direct on-balance-sheet holdings.
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What is the CLARITY Act?
The CLARITY Act (Clarity for Digital Assets Act) is a bill that would give banks a clearer statutory role in digital asset markets. It advanced through the Senate Banking Committee, but senators argue that without changes to capital rules, its permissions would be ineffective.
