The collateral requirement for hazardous assets like cryptocurrencies has been increased by MAS from 1:1 to 1.25:1 in an effort to safeguard investors in the cryptocurrency industry.
In order to ensure that there are sufficient reserves to handle losses or other issues, financial institutions must hold $1.25 in traditional cash for every dollar of cryptocurrency.
According to Tharman Shanmugaratnam, Senior Minister of the Monetary Authority of Singapore (MAS), Singapore-registered banks must take 1,250% for high-risk crypto assets like Bitcoin and Ethereum until the framework is implemented. He said:
“Pending the finalization of the framework, MAS requires Singapore-incorporated banks to apply a 1,250 percent risk weight for exposures to riskier crypto assets such as bitcoin and ether. Based on MAS’ minimum total capital adequacy requirement of ten percent for systemically important banks incorporated in Singapore, Singapore-incorporated banks are required to hold $125 of capital against an exposure of $100 to a crypto asset like bitcoin.”
For systemically important institutions established in Singapore, the minimum capital adequacy ratio requirement is 10%, meaning that each $100 in crypto asset exposure that the banks have requires $125 in capital. Shanmugaratnam further stated:
"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 of the conventional non-tokenized asset.“
One of the nations experiencing rather serious repercussions from the recent fall of the formidable FTX empire is Singapore. Midway through November, the company declared bankruptcy, sending shockwaves through the cryptocurrency community. Numerous other businesses, like Block Fi, were negatively impacted by the corporation and eventually declared bankruptcy.
