Report on JP Morgan's Cryptocurrency Lending: Implications for Traditional Financial Institutions
The Basel Committee on Banking Supervision (BCBS) has not formally adopted Basel crypto-specific rules in the United States as of mid-2025. Instead, U.S. banking regulatory agencies are reviewing and revising capital and leverage requirements, including those influenced by past Basel III reforms and international standards.
The U.S. federal regulators, such as the Federal Reserve, FDIC, and OCC, are actively recalibrating the regulatory framework, as evidenced by the proposed rule to revise the enhanced supplementary leverage ratio (eSLR) for large U.S. global systemically important banks. This proposed rulemaking is part of a broader regulatory capital framework review aimed at addressing criticisms that previous reforms were too stringent and could limit credit availability.
Regarding crypto and stablecoins, the regulatory frameworks are developing from separate regulatory and legislative initiatives rather than from direct Basel Committee mandates. The U.S. is moving towards more defined regulatory frameworks, including preparation for licenses for stablecoin issuers subject to governance, anti-money laundering (AML), and consumer protection standards. Legislative efforts like the GENIUS Act are also progressing toward clearer U.S. regulation of digital assets.
Meanwhile, several global financial associations have sent a letter to the Basel Committee requesting changes to the rules, including revisiting the 1250% risk weighting for cryptocurrencies. This high risk weighting requires banks to ringfence $1 of capital for every $1 of crypto exposure. However, it remains unclear whether the Basel crypto rules will be adopted in the United States.
In the private sector, JP Morgan is considering providing loans against cryptocurrency holdings, as reported by the Financial Times. The bank could have substantial indirect crypto collateral exposures while avoiding the full impact of the 1250% risk weighting. If cryptocurrencies are used as collateral, they may sidestep this treatment, although banks still have significant risk exposure to the underlying loan.
Changes made to the US Uniform Commercial Code (UCC) in 2022 make it viable to treat cryptocurrency as collateral in a legally secure manner. This development could potentially lead to a more widespread use of cryptocurrencies as collateral in the U.S., further complicating the regulatory landscape.
It is important to note that the author is not a lawyer, and this information is not legal advice. Ripple executives wrote an opinion piece today, expressing the financial community's keenness to see the Basel rules relaxed, but there has been little movement so far. Another letter from financial associations is expected, according to Ripple executives.
As of now, the regulatory evolution and consultation in the U.S. reflect a shift toward a more data-driven, consultative approach by U.S. regulators rather than strict adherence or immediate adoption of Basel Committee crypto proposals. The Basel Committee, IMF, and Financial Stability Board continue to coordinate on identifying and harmonizing national financial institution rules, which may impact future Basel-related recommendations or reforms.
References: 1. CoinDesk 2. Federal Reserve 3. Congress.gov 4. International Monetary Fund 5. Financial Stability Board
- The Basel Committee on Banking Supervision (BCBS) has not yet formally adopted Basel crypto-specific rules within the United States due to mid-2025.
- The U.S. regulatory framework, including the Federal Reserve, FDIC, and OCC, are revising capital and leverage requirements, influencing past Basel III reforms and international standards.
- Regulatory initiatives for crypto and stablecoins in the U.S. are separate from direct Basel Committee mandates, with efforts focusing on licensing, AML, and consumer protection standards.
- Financial associations request changes to the rules, including reconsidering the 1250% risk weighting for cryptocurrencies, but it's uncertain if the Basel crypto rules will be adopted in the U.S.
- JP Morgan is contemplating providing loans against cryptocurrency holdings, potentially offering substantial indirect crypto collateral exposure while bypassing the full impact of the 1250% risk weighting.
- Changes to the US Uniform Commercial Code (UCC) in 2022 make it possible to legally secure cryptocurrency as collateral, potentially leading to increased usage and complicating the regulatory landscape.
