Republican senators push to lower 1,250 percent crypto capital rule

Republican senators address regulators

Wyoming Senator Cynthia Lummis, a longtime advocate on digital assets, led the initiative along with five other Republican senators. The group addressed their letter to Michelle Bowman, Vice Chair for Supervision at the Federal Reserve, FDIC Chairman Travis Hill, and Jonathan Gould, Acting Comptroller of the Currency.

The senators stressed that banks should hold capital in line with actual risk levels, noting that treating all digital asset activities as inherently high-risk is misguided.

The group openly criticized the Basel Committee on Banking Supervision’s imposition of a 1,250 percent risk weighting on some digital assets. They argued that this blanket figure defines the entire sector as extremely risky without adequate distinction, causing a de facto ban in practice.

Glossary: The Basel Committee on Banking Supervision is known for setting international standards on banks’ capital adequacy and risk management. While its decisions are not laws, they heavily influence national regulations in many countries.

Tokenized securities cited as precedent

The senators urged regulators to extend the recent treatment of tokenized securities to a broader range of digital assets. In March, the Federal Reserve, FDIC, and OCC announced that tokenized securities would generally be subject to the same capital treatment as traditional securities. The senators underlined that this principle should also apply to other digital asset activities.

According to the Republican senators, banks need clear and predictable rules to expand their crypto asset services on balance sheets. The group maintained that capital requirements should be based on specific risk factors rather than a blanket ban approach, allowing regulated financial institutions to participate more safely in digital asset markets.

The senators stated that balanced rules would enable banks to offer crypto services under supervision and help keep commercial activity within the regulated financial system.

Timing coincides with Congress agenda

The timing of the letter has drawn attention. Congress is currently considering broad digital asset regulations, which could give banks greater freedom to conduct crypto activities through their balance sheets. The senators emphasized that capital rules need to be clarified before new authorities are introduced.

The initiative has backing from Dan Sullivan, Bill Hagerty, Bernie Moreno, Ted Budd, and Jon Husted, indicating that the issue has evolved beyond technical banking debates and is now part of broader Republican pressure on regulatory agencies.

Regulators’ response awaited

The senators contend that any capital framework should balance genuine risks and the market’s potential. They argued that current standards do not reflect present market conditions and could push some activities outside the regulated banking sector.

The debate is expected to intensify in coming days. Michelle Bowman, Travis Hill, and Jonathan Gould are scheduled to testify before the House Financial Services Committee on Thursday. Their testimony is seen as likely to influence the next steps in the US banking system’s treatment of crypto assets.