In a strong signal that the international banking and financial sector is responding to rising demand for cryptoassets, the Basel Committee on Banking Supervision, a unit of the Bank of International Settlements, on Thursday published a consultation paper “to seek the views of stakeholders on a preliminary proposal [for] the prudential treatment for cryptoassets.”

The Basel Committee acknowledges that “[c]ryptoassets have given rise to a range of concerns including consumer protection, money laundering and terrorist financing, and their carbon footprint” and that the “growth of cryptoassets and related services has the potential to raise financial stability concerns and increase risks faced by banks.” Central bank digital currencies are not included in the scope of the committee’s paper.

In the committee’s view, there are three general principles that need to be followed when regulating the “prudential treatment of cryptoassets.” First, if a cryptoasset offers “equivalent” functions and risks as traditional assets, then cryptoassets “should be subject to the same capital, liquidity, and other requirements” as traditional assets. Second, the design of the prudential requirements should be simple. Third, any committee-specified requirements would only be “a minimum standard for internationally active banks.”

Supporters of cryptocurrencies and other digital assets are likely to balk at the proposed requirements that would require assets like Bitcoin and Ethereum to meet much tougher capital requirements than stablecoins. The risk weight the committee recommends for cryptoassets is 1,250%. That means, for example, a $100 exposure would require risk-weighted assets of $1,250, which when multiplied by the minimum capital requirement of 8% results in a minimum capital requirement of $100.

U.S. government debt carries a risk weight of 0% and residential mortgages not guaranteed by the U.S. government have risk weights ranging from 35% to 200%.

Stablecoins would qualify to be treated under existing capital requirement rules provided that they were 100%-backed by bank reserves “at all times.” Digital tokens based on traditional assets like stocks and bonds also qualify to be treated under existing rules.

An unnamed executive at a bank involved in the crypto space told the Financial Times, “If we are going to impose a punitive weighting, what we are saying is we don’t want these assets in the banking system.  We’ve all seen what happens when you drive activity out of a pretty well regulated system into the wild west . . . Do the regulators want the adults to do the business, or would they want the teenagers to do the business?”

The committee is accepting comments on the proposals until September 10.

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