It could also put collateral markets under strain, undermine bank customer loyalty and know-your-customer standards and potentially prompt greater risk-taking by deposit institutions. Moreover, any rise in banks’ direct and indirect exposure to crypto-assets would also increase both their financial and reputational risks23. While currently limited, exposures relating to the provision of ancillary services to the distribution of third-party products or as a result of providing support to clients operating in the crypto sphere are on the rise. Fourth, the potential consolidation of crypto-assets as an alternative payment method threatens to create parallel value transfer systems. For as long as such assets fall out of the scope of central bank oversight, they will be hard pressed to contain the emergence of possible systemic risks. In certain circumstances (particularly in emerging markets), there may be even a risk of what is known as “cryptoisation”: i.e. the replacement of the national currency and other financial assets denominated in that currency with a crypto alternative.24 Among other aspects, such circumstance can compromise a country’s monetary autonomy and undermine the ability to exercise effective control over international capital movements.25 Fifth, we should also be mindful that some crypto-assets could increase the financial sector’s climate transition risk, given that some of the underlying consensus mechanisms require a significantly greater amount of energy than traditional financial market infrastructures. To put this more clearly, proof-of-work associated crypto-assets currently account for around 80% of the total capitalisation value.

Nevertheless, it is only a first step, and implementation measures have still to be elaborated by European and American competent authorities and, as recalled by a popular saying: as usual “the devil is in the details”. BIS central bankers’ speeches  1  Therefore, it is of the uttermost importance to further encourage cooperation and exchange of information between the European and American competent authorities. I will come back on this issue later on. 1.2 Concerning the recent evolutions of the banking regulation, let me first point out that, to me, the Basel 3 package constitutes a very significant advance that will in the long run strengthen the prudential framework for banks. The main message I would like to emphasize today is that Basel 3 is a balanced reform, in the sense that it is both ambitious and cautious. The scope of risks captured by the Basel framework has been enhanced very significantly. Banks’ capacity to absorb losses has been magnified by more than three times if, beyond the higher level, you account for the improvements in the quality of capital. Some incentives towards excessive risk-taking have been corrected, through higher capital requirements for riskier activities, notably those related to re-securitization, and also through new rules for compensation policies. A leverage ratio will be introduced that will act as a backstop, and not a substitute, to risk-weighted regulation. Besides, I believe that, with Basel 3, some important work of harmonization has already been done.