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6 hours ago, dr_ed said:

I will be long XRP on Jan.1, for sure. Not because of MGI, but because the banks might decide to buy, finally.

I doubt the banks will touch it. 

Holding crypto will heighten a banks operational risk profile. Regulatory bodies will likely slap capital charges to mitigate this risk, which would mean the banks would need to tie up money in a capital fund doing nothing, just to offset this risk.

Edited by KevClem
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1 minute ago, KevClem said:

I doubt the banks will touch it. 

Holding crypto will heighten a banks operational risk profile. Regulatory bodies will likely slap capital charges to mitigate this risk, which would mean the banks would need to tie up money in a capital fund doing nothing.

I apologize for having called you a troll. That was clearly inaccurate.

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3 minutes ago, KevClem said:

I doubt the banks will touch it. 

Holding crypto will heighten a banks operational risk profile. Regulatory bodies will likely slap capital charges to mitigate this risk, which would mean the banks would need to tie up money in a capital fund doing nothing, just to offset this risk.

In the short-term holding unhedged crypto will absolutely be a risk (yesterday being a great example of why), but longterm, financial institutions will have to participate in a maker/taker capacity In token markets to remain relevant to the payment infrastructure.

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7 minutes ago, dr_ed said:

I apologize for having called you a troll. That was clearly inaccurate.

Depending on a banks exposure these capital funds can run into the hundreds of millions.

Either way Jan the 1st will be interesting to see what the risk appetite will be by banks to delve into crypto.

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4 minutes ago, ADingoAteMyXRP said:

In the short-term holding unhedged crypto will absolutely be a risk (yesterday being a great example of why), but longterm, financial institutions will have to participate in a maker/taker capacity In token markets to remain relevant to the payment infrastructure.

Yes, but that wont exclude them from having to hold capital reserves to cover the risk.

Look at CBA, Australias largest Bank, $1billion dollars held in a capital reserve doing nothing following their AML scandal, and now Westpac has been asked to up their's from $500m to $1billion following their own Litepay scandal. It's what happens when payments platforms go wrong.

Edited by KevClem
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39 minutes ago, KevClem said:

I doubt the banks will touch it. 

Holding crypto will heighten a banks operational risk profile. Regulatory bodies will likely slap capital charges to mitigate this risk, which would mean the banks would need to tie up money in a capital fund doing nothing, just to offset this risk.

Completely agree but only if a bank decides to keep the asset on its balance sheet. Luckily, financial regulation very much differs from country to country and a company can be regulated as a bank in one jurisdiction but as something else in another. PayPal is a great example, its regulation varies from a bank to an aggregator in different countries. Tier1 banks also have work-arounds, a semi-independent fund can be established, separating bad or just “unwanted” assets from the main balance sheet. 

I am not saying banks will be holding DA short term (mainly because not many truly understand them) but it is technically possible.

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59 minutes ago, KevClem said:

Yes, but that wont exclude them from having to hold capital reserves to cover the risk.

Look at CBA, Australias largest Bank, $1billion dollars held in a capital reserve doing nothing following their AML scandal, and now Westpac has been asked to up their's from $500m to $1billion following their own Litepay scandal. It's what happens when payments platforms go wrong.

Okay, but you're not looking far enough ahead. Holding XRP instead of offshore accounts at every bank they do business with on the planet would be a great way to reduce that risk.

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52 minutes ago, KevClem said:

I see your point of view, but the banks are hamstrung by regulators and their perception of risk.

 

I wonder if that is really true though. I work with assessing risk in a bank in the EU (and I'm sorry, but EU regulation is all I know). The EU follows the Basel requirements through the CRR (https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0575&from=EN). Article 128(3), which handles the "Standardised Approach" (and lets keep to the standardised approach for simplicity's sake), states that :

Quote

1. Institutions shall assign a 150 % risk weight to exposures, including exposures in the form of shares or units in a CIU that are associated with particularly high risks, where appropriate.

2. Exposures with particularly high risks shall include any of the following exposures:

   (a) investments in venture capital firms;

   (b) investments in AIFs as defined in Article 4(1)(a) of Directive 2011/61/EU except where the mandate of the fund does not allow a leverage higher than that required     under Article 51(3) of Directive 2009/65/EC;

   (c) investments in private equity;

   (d) speculative immovable property financing.

3. When assessing whether an exposure other than exposures referred to in the paragraph 2 is associated with particularly high risks, institutions shall take into account the following risk characteristics:

   (a) there is a high risk of loss as a result of a default of the obligor;

   (b) it is impossible to assess adequately whether the exposure falls under point (a).

So exposures in crypto currencies would fall under 3 (b) since there is no obligor to your exposure. This yields a RWA (Risk Weighted Asset, the figure that determines your capital requirement) of 150% of the book value, which is not that high compared to capital requirements for unspecified corporate entities, which is 100% of the book value. The cost of holding crypto assets for banks is only 1,5 times the cost of lending the same amount to an unspecified corporate entity.

However, the biggest risk for the banks is of course to be the first mover and to break new ground. The regulation is not specifically covering exposures in crypto assets and to utilise Article 128(3)(b) for those types of assets is inconvenient, since it is a last resort for assets which was not in the regulators mind when constructing the regulation.

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46 minutes ago, pnsh said:

They comply with regulators which basically requires them not to hold speculative positions. Crypto unfortunately is considered speculative.

If the regulators change their classification of XRP that changes everything

Thats the point. People are investing in XRP because they see the utility it can achieve. Investing in it before those laws become realized equal getting it on the cheap.

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4 hours ago, opaopa said:

However, the biggest risk for the banks is of course to be the first mover and to break new ground. The regulation is not specifically covering exposures in crypto assets and to utilise Article 128(3)(b) for those types of assets is inconvenient, since it is a last resort for assets which was not in the regulators mind when constructing the regulation.

Which in turn might lead to a Capital add-on, not specified by the regulation. 

@KevClem, you are right though, it’s more “perception of risk” than “risk”.

Edited by Lamberth
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