Bank regulators plan capital rule for bitcoin

Bank regulators plan capital rule for bitcoin
Major economies including China and the US have signaled in recent weeks a tougher approach on bitcoin. (Shutterstock)
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Updated 11 June 2021

Bank regulators plan capital rule for bitcoin

Bank regulators plan capital rule for bitcoin
  • Crypto assets could increase risk to global financial stability if capital requirements are not met

LONDON: Banks must set aside enough capital to cover losses on any bitcoin holdings in full, global banking regulators proposed on Thursday, in a “conservative” step that could prevent widescale use of the cryptocurrency by major lenders.
The Basel Committee on Banking Supervision, made up of regulators from the world’s leading financial centers, proposed a twin approach to capital requirements for crypto assets held by banks in its first bespoke rule for the nascent sector.
El Salvador has become the world’s first country to adopt bitcoin as legal tender even though central banks globally have repeatedly warned that investors in the cryptocurrency must be ready to lose all their money.
Major economies including China and the US have signalled in recent weeks a tougher approach, while developing plans to develop their own central bank digital currencies.
The Swiss-based Basel committee said in a public consultation paper that while bank exposures to crypto assets are limited, their continued growth could increase risks to global financial stability if capital requirements are not introduced.
Bitcoin and other cryptocurrencies are currently worth around $1.6 trillion globally, which is still tiny compared with bank holdings of loans, derivatives and other major assets.
Basel’s rules require banks to assign “risk weightings” to different types of assets on their books, with these totted up to determine overall capital requirements.
For crypto assets, Basel is proposing two broad groups.
The first includes certain tokenized traditional assets and stablecoins which would come under existing rules and treated in the same way as bonds, loans, deposits, equities or commodities.
This means the weighting could range between 0 percent for a tokenized sovereign bond to 1,250 percent or full value of asset covered by capital.
The value of stablecoins and other group 1 crypto-assets are tied to a traditional asset, such as the dollar in the case of Facebook’s proposed Diem stablecoin.
Nevertheless, given crypto assets are based on new and rapidly evolving technology like blockchain, this poses a potentially increased likelihood of operational risks which need an “add-on” capital charge for all types, Basel said.
The second group includes cryptocurrencies like Bitcoin that would be subject to a new “conservative prudential treatment” with a risk-weighting of 1,250 percent because of their “unique risks.”
Bitcoin and other cryptocurrencies are not linked to any underlying asset.
Under Basel rules, a 1,250 percent risk weight translates into banks having to hold capital at least equal in value to their exposures to Bitcoin or other group 2 crypto assets.
“The capital will be sufficient to absorb a full write-off of the crypto asset exposures without exposing depositors and other senior creditors of the banks to a loss,” it added.
Few other assets that have such conservative treatment under Basel’s existing rules, and include investments in funds or securitizations where banks do not have sufficient information about their underlying exposures.
The value of Bitcoin has swung wildly, hitting a record high of around $64,895 in mid-April, before slumping to around $36,834 on Thursday.
Banks’ appetite for cryptocurrencies varies, with HSBC saying it has no plans for a cryptocurrency trading desk because the digital coins are too volatile. Goldman Sachs restarted its crypto trading desk in March.
Basel said that given the rapidly evolving nature of crypto assets, a further public consultation on capital requirements is likely before final rules are published.
Central bank digital currencies are not included in its proposals.


TASI up 0.3 percent; supported by the banking sector: Market Wrap

TASI up 0.3 percent; supported by the banking sector: Market Wrap
Updated 21 sec ago

TASI up 0.3 percent; supported by the banking sector: Market Wrap

TASI up 0.3 percent; supported by the banking sector: Market Wrap

RIYADH: The Tadawul All Share Index rose on Tuesday by 0.3 percent, or 34 points, to 11.792 points. 

Some 198.6 million of shares changed hands in 341,000 deals, with heavy trading in ACWA Power, AL Rajhi, and Petro Rabigh. 

The market's rise is supported by an increase in banking shares, led by Al-Rajhi Bank, which rose by 3.1 percent — the highest increase since 2006.

Etihad Etisalat shares also rose by 2.8 percent, supported by the company's profit growth in the third quarter, which amounted to SR281 million — up 56.6 percent. The firm also reported a 7.4 percent growth in revenues.

The biggest winners today were National Buildings and Marketing by 12.1 percent, Shams by 4.3 percent, Al Naqool by 3.5 percent, Al Rajhi by 3.1 percent, Mebco by 2.9 percent, Mobily and Saudi Re by 2.8 percent. 

Other News:

Arabian Contracting Services Co. announced that 1.5 million shares will be offered to individual subscribers, the equivalent of 10 percent of the total shares offered for public subscription. The price of the offering ranges between SR90-100 per share, according to the director of the offering, GIB Capital.

The Arab Company for Internet and Communications Services "Solutions" achieved a net profit with the amount of SR257 million in the third quarter of 2021, compared to SR240 million for the same period last year — an increase of 7.08 percent 

The company said that the profit growth is mainly due to the increase in gross profit by 6.7 percent (SR29 million), thanks to a rise in total revenues by 0.46 percent (SR 9million) and a decrease in revenue costs by 1.3 percent (SR20 million)

The parallel stock market index Nomu closed up 24368.26 points, or 2.23 percent, where 464.4 thousand shares were traded, with 1885 deals. 

The biggest fallers today were Yansab by 3.5 percent, Arabia Insurance cooperative, Alinma Tokio Marine, and Petro Rabigh by 3.1 percent respectively, and Sumou and United Cooperative Assurance by 2.9 percent each.


Bitcoin futures highlight some pitfalls for new exchange-traded funds: Crypto Wrap

Bitcoin futures highlight some pitfalls for new exchange-traded funds: Crypto Wrap
Updated 16 min 11 sec ago

Bitcoin futures highlight some pitfalls for new exchange-traded funds: Crypto Wrap

Bitcoin futures highlight some pitfalls for new exchange-traded funds: Crypto Wrap

RIYADH: Bitcoin hit a six-month high and was within striking distance of its all-time peak on Tuesday, as traders bet an anticipated listing of a futures-based US exchange-traded fund (ETF) could herald investment flows into cryptocurrencies.

Bitcoin has been known for its volatility for 13 years and has recently been trading fairly flat, but it has been surging around 40 percent this month on hopes that the emergence of Bitcoin ETFs will see billions of dollars managed by pension funds and other large investors flow into the sector.

ProShares Bitcoin Strategy ETF is expected to list on Tuesday under the ticker BITO, provided the U.S. regulator, the Securities and Exchange Commission, does not object.

Analysts said the ETF would also likely simplify access to cryptocurrencies for retail investors.

"It can attract flows from investors who prefer the ease of an ETF over the perceived risk of an exchange," Martha Reyes, head of research at crypto exchange Bequant said.

Other analysts have also cautioned that the fund will not invest directly in bitcoin rather in Chicago-traded futures, so any immediate effects of the flows may be limited.

Crypto ETFs have launched this year in Canada and Europe amid surging interest in digital assets. VanEck and Valkyrie are among fund managers pursuing such products listed in the US, although Invesco on Monday dropped its plans for a futures-based fund.

The Nasdaq on Friday approved the listing of the Valkyrie Bitcoin Strategy ETF and Grayscale, the world's largest digital currency manager, is planning to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF, CNBC reported.

The launch of the first bitcoin futures ETF on Tuesday marks a major step toward legitimizing the cryptocurrency, but some investors in such funds may face higher costs compared with buying the digital currency itself, Reuters reported.

ProShares will be backed by the CME Group's bitcoin futures instead of the actual virtual asset itself. Its offering is expected to lead to more launches of futures-based ETFs in the coming days and weeks after years of regulatory roadblocks.

Market participants generally praised the relative ease and safety of owning an exchange-traded product instead of buying bitcoin from cryptocurrency exchanges and brokers.

Investors won't have to worry about custody and securing their digital wallets, although analysts said there are top-tier exchanges that offer these services to their customers as well.

Futures

A futures-based ETF price will not necessarily match the current price of the underlying asset.

"In most cases, such futures funds based on commodity assets such as gold tend to underperform physical ones," Mikkel Morch executive director at crypto and digital assets hedge fund ARK36 said.

In addition to the risk of a futures-based bitcoin fund underperforming bitcoin, it also comes with the cost of the futures roll-over, some analysts said. However, analysts believe investors will still buy the futures-based funds despite the higher cost.

Trading

Bitcoin, the leading cryptocurrency in trading internationally, traded higher on Tuesday, rising by 0.99 percent to $62,494 at 5:20 pm Riyadh time. While Ether, the second most traded cryptocurrency, traded at $3,813, up 0.57 percent, according to data from Coindesk.


Shipping industry faces ESG heat from lenders

Shipping industry faces ESG heat from lenders
Updated 19 October 2021

Shipping industry faces ESG heat from lenders

Shipping industry faces ESG heat from lenders

LONDON: Banks are demanding much stricter environmental criteria when financing shipping companies as investor pressure grows on the sector to accelerate going greener, according to Boston Consulting Group (BCG).

Shipping, which transports about 90 percent of world trade, accounts for nearly 3 percent of the world’s CO2 emissions and BCG forecast the industry will need $2.4 trillion to achieve net-zero emissions by 2050.

“ESG-driven requests are already prompting more action from banks. Shipping is already feeling it and they (shipping companies) are under pressure now,” said Peter Jameson, partner with BCG, which are consultants for the COP26 UN climate summit that starts on Oct. 31.

Standard Chartered has already provided loans linked to sustainability targets for drilling group Odfjell and the shipping division of Oman’s Asyad Group, the bank has said.

“When looking at lending on new assets, banks are going to create a bigger conduit for CO2 reductions through their policies,” Jameson told Reuters.

“The banks are also seeing insurance companies feeling shareholder pressure and this is also causing big pension funds to reassess.”

ESG-related assets under management are estimated to represent up to 80 percent of total lending to shipping by 2030, BCG said.

UN shipping agency the International Maritime Organization has said it aims to reduce overall greenhouse gas (GHG) emissions from ships by 50 percent from 2008 levels by 2050, but industry groups are calling for more progress from governments.


Global FDI flows rise by over 70% despite a divergence in inflows for different countries: Economic wrap

Global FDI flows rise by over 70% despite a divergence in inflows for different countries: Economic wrap
Updated 19 October 2021

Global FDI flows rise by over 70% despite a divergence in inflows for different countries: Economic wrap

Global FDI flows rise by over 70% despite a divergence in inflows for different countries: Economic wrap

According to UN data, global foreign direct investment flows were valued at $852 billion in the first half of 2021. This reflected a partial-year growth of 78 percent when compared to 2020.

In the US, inflows were up by 90 percent, driven by a surge in cross-border mergers and acquisitions.

However, James Zhan, the United Nations Conference on Trade and Development’s director of investment and enterprise, said that this “mask(s) the growing divergence in FDI flows between developed and developing economies.”

While FDI inflows to high-income countries leapt by a massive partial-year rate of 117 percent, low-income countries faced a 9 percent decline in inflows.

Eurozone’s construction

The euro area’s construction output fell by 1.6 percent year-on-year in August, data released by Eurostat revealed. This was driven by a 2.9 percent annual decline in civil engineering production and a 1.3 percent fall in building construction.

Construction fell the most in Spain and Romania as they saw their annual construction output slip by 13.9 percent and 7 percent respectively. 

On the other hand, Hungary experienced the highest jump in yearly construction production, growing by 10.2 percent. Poland was the second highest with a 7.9 percent year-on-year rise.

On a monthly basis, the zone’s construction also declined by 1.3 percent in August when compared to July.

European trade balances

Switzerland’s trade surplus decreased to CHF4.4 billion in September down from the all-time high of CHF4.6 billion recorded in the previous month, official data showed. 

Exports declined by a monthly rate of 0.2 percent in September. This was driven by a fall in exports to a number of countries. Most notably, exports to the US and Japan slumped by 22.2 percent and 9.6 percent respectively. 

On the other hand, imports rose by 0.9 percent to reach its highest level in 20 months. Imports of pharmaceutical products experienced the highest increase as it grew by 5.2 percent.

Meanwhile, Spain's trade deficit steeply expanded to €3.87 billion in August from a deficit of €1.73 billion in the same month last year, according to official data. 

This was the largest monthly trade deficit since September 2019 as imports leaped by 33.9 percent year-on-year to €26 billion. This was fuelled by an 11.4 percent rise in energy purchases and a 7.9 percent jump in imports of chemical products. Meanwhile, exports rose at a slower 25.1 percent growth rate to reach €22 billion.

During the first eight months of the year, Spain's trade deficit rose to €10.87 billion, from €9.6 billion in the same period a year earlier.

Indonesia’s interest rate on hold

Indonesia's central bank kept interest rates steady at its record low level of 3.5 percent on Monday. Rates remain low to boost economic activity, the bank said.

Bank Indonesia expects the economy to grow by 3.5-4.3 percent in 2021.


UK sets out net zero strategy as it gears up to host COP26

UK sets out net zero strategy as it gears up to host COP26
Updated 19 October 2021

UK sets out net zero strategy as it gears up to host COP26

UK sets out net zero strategy as it gears up to host COP26

LONDON: British Prime Minister Boris Johnson on Tuesday set out his ambition for a green revolution that he hopes will force Western economies to kick their addiction to fossil fuels.

Britain at the end of the month hosts the COP26 UN climate talks in Glasgow, Scotland, which aim to strengthen global action on global warming.

“With the major climate summit COP26 just around the corner, our strategy sets the example for other countries to build back greener too as we lead the charge towards global net zero,” Johnson said.

Johnson, who once expressed skepticism about climate change, presented his 368-page net zero strategy as a document that would put the UK at the vanguard of green economies.

“The UK leads the world in the race to net zero,” he said in the foreword to the “Net Zero Strategy: Build Back Greener.”

“The likes of China and Russia are following our lead with their own net zero targets, as prices tumble and green tech becomes the global norm,” he said.

The net-zero strategy is essentially a series of long-term promises, some with caveats, to shift the world's fifth largest economy towards green technologies — from moving to clean electricity “subject to security and supply” to “setting a path” to low-carbon heating in British homes.

It aims to secure 440,000 jobs and unlock £90 billion ($124 billion) of private investment by 2030.

It also aims to help Britain gain a competitive edge in low-carbon technologies such as heat pumps, electric vehicles, carbon capture and storage and hydrogen.

The government aims to be powered entirely by clean electricity, subject to security of supply, by 2035. It aims to have 40 GW of offshore wind power by 2030, as well as 1 GW of floating offshore wind.

Britain will also deliver 5 GW of hydrogen production capacity by 2030 while cutting its emissions from oil and gas by half.

The government aims to deploy at least 5 million tons of CO2 a year of engineered greenhouse gas removals by 2030.

Earlier on Tuesday, Johnson announced nearly £10 billion of private investment in green projects at an investment summit in London.