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Singapore Banks' Exposure to Bitcoin 'Insignificant' but Subject to Highest Risk Weight

Singapore's banks are required to hold $125 of capital against an exposure of $100 to risky cryptocurrencies like bitcoin or ether, an official said Monday.

Although the jurisdiction's banks have "insignificant" levels of exposure to crypto – contributing less than 0.05% of total risk weighted assets – these types of crypto assets are subject to the toughest risk management requirements set by international standard-setters, said Senior Minister and Minister in charge of the Monetary Authority of Singapore Tharman Shanmugaratnam in a written response to a question posed during a parliamentary session.

"Pending the finalization of the framework, MAS requires Singapore-incorporated banks to apply a 1250% risk weight for exposures to riskier crypto assets such as Bitcoin and Ether," he said. "... Based on MAS’ minimum total capital adequacy requirement of 10% for systemically important banks incorporated in Singapore, this means that Singapore-incorporated banks are required to hold $125 of capital against an exposure of $100 to a cryptoasset like Bitcoin."

Singapore's lawmakers are facing tough question about crypto during the ongoing parliamentary session, which kicked off Monday. Most questions involve the collapse of Sam Bankman-Fried's crypto exchange FTX, with some scrutinizing the investment made by state fund Temasek in the fallen enterprise.

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Since the collapse, the country's financial regulator, the MAS, has also had to answer questions about how it decides which crypto exchanges are safe for use by investors.

In August, the MAS said that it was working with other regulators on setting up a prudential framework for banks' exposure to crypto. Shanmugaratnam said on Monday that Singapore is following the requirements recommended by international standard-setter the Basel Committee on Banking Supervision (BCBS). BCBS is set to finalize capital requirements for cryptocurrencies like bitcoin and ether by the end of the year.

Until that framework is finalized, the MAS is going with the "highest risk weight under the BCBS’ capital framework," according to Shanmugaratnam.

"For less risky crypto assets, such as tokenized corporate bonds that meet a set of conditions to ensure that they pose the same level of financial risks as traditional corporate bonds, the prudential treatment is similar to that applied to the traditional non-tokenized asset," Shanmugaratnam said.

Read more: Banks’ Crypto Asset Holdings May Be Just 0.01% of Total Risk Exposure, Basel Study Finds