The Basel Rule Senators Say Locks US Banks Out of Bitcoin

Six Republican senators sent a letter to three federal bank regulators on May 27, targeting a capital rule that turns any congressional permission for banks to hold Bitcoin into an economic impossibility before a position is opened. Senators Cynthia Lummis, Bill Hagerty, Dan Sullivan, Bernie Moreno, Jon Husted, and Ted Budd pressed Federal Reserve Vice Chair for Supervision Michelle Bowman, FDIC Chair Travis Hill, and OCC Comptroller Jonathan Gould to build a new capital framework for on-balance-sheet digital asset activities, arguing that Basel’s 1,250% risk weight for assets such as Bitcoin amounts to a backdoor ban on bank holdings.

Their timing maps to the Senate floor calendar. The Digital Asset Market Clarity Act (CLARITY Act) cleared the Senate Banking Committee on a 15-9 vote on May 14, heading toward a full Senate floor vote that backers want completed before August. The senators’ letter argues that statutory authorization and capital economics are two separate problems, and Congress is currently solving only one.

The Arithmetic That Stops a Bank

The math running through the senators’ letter traces back to a Basel Committee on Banking Supervision (BCBS) classification embedded in the global bank capital standard. Bitcoin sits in Group 2b of the BCBS cryptoasset exposure standard known as SCO60, the most punitive category the framework contains. A risk weight multiplied by the minimum capital ratio produces the required capital charge. At 1,250%, the product is dollar-for-dollar: for every $100 million of Bitcoin exposure a bank takes on, it must hold at least $100 million of Tier 1 capital against it.

For a bank holding to the 8% regulatory floor, that means $100 million locked in capital. For a bank targeting a 12% Common Equity Tier 1 (CET1) ratio, a common internal benchmark at large US lenders, the same Bitcoin position requires $150 million in capital held against it.

The Bitcoin Policy Institute’s analysis of the SCO60 classification describes the Group 2b assignment as a category error. The 1,250% weight was designed for the most opaque, unrateable securitization tranches in banking, instruments where underlying collateral has been specifically depleted and the risk profile is genuinely unmeasurable. Bitcoin’s risks, including price volatility, custody complexity, and operational exposure, are quantifiable within existing Basel market-risk frameworks. They don’t match the instruments the classification was built for.

Normal custody fees, trading spreads, and client-service margins don’t generate returns wide enough to clear an $18 million annual profit requirement on a $100 million exposure. A bank with a legal license to hold Bitcoin, facing that capital charge, finds the position unviable before any trade clears settlement.

The CLARITY Act’s Open-Door Problem

The CLARITY Act would create a federal framework for digital asset markets by clarifying which cryptocurrencies fall under the Securities and Exchange Commission (SEC) versus the Commodity Futures Trading Commission (CFTC), adding disclosure requirements for intermediaries, and integrating anti-money-laundering provisions across the digital asset ecosystem. Senate Banking Committee Chairman Tim Scott (R-SC) called the May 14 markup a “historic bipartisan step” in his majority press release after nearly a year of negotiations. Two Democrats, Angela Alsobrooks of Maryland and Ruben Gallego of Arizona, crossed the aisle to reach the 15-9 threshold.

Before it reaches the president’s desk, the bill still needs to clear the full Senate and be reconciled with the House’s separate version. The Senate floor vote requires 60 votes under cloture rules. Cody Carbone, who leads the Digital Chamber, a crypto industry advocacy group, told reporters that backers want the floor vote before August to give the bill any realistic chance of crossing that threshold. Treasury Secretary Scott Bessent has publicly projected a July 4 signing. A joint statement from six major banking trade groups, including the American Bankers Association and the Bank Policy Institute, called the committee vote an important step while pressing senators to address stablecoin yield provisions.

The bill’s substitute text includes language allowing banks and credit unions to use digital assets or distributed-ledger systems in otherwise authorized activities. That is the statutory permission the senators’ letter is responding to. The six lawmakers wrote directly: “This legislation authorizes banks to engage in a number of on-balance sheet activities with digital assets, which will undoubtedly require capital guidance.” Capital guidance isn’t something a market structure bill can supply. It’s a regulatory function sitting with the Fed, FDIC, and OCC specifically, and the three officials the senators wrote to separately on May 27.

Three Agencies, One Untouched Question

The Pivot From Supervision to Access

In the 15 months before the senators’ letter, the Fed, FDIC, and OCC each made visible moves toward crypto permissiveness. The Office of the Comptroller of the Currency (OCC) reaffirmed in March 2025 that national banks may engage in crypto custody, stablecoin-related activities, and distributed-ledger payment functions, removing the prior non-objection requirement that had given examiners an informal veto over new crypto ventures. The Federal Deposit Insurance Corporation (FDIC) followed the same month, rescinding its notification requirement and allowing supervised institutions to pursue permissible crypto activities without prior approval. The Fed withdrew its guidance on crypto assets and dollar tokens in April 2025, framing the withdrawal as support for innovation.

Taken together, the three moves amounted to a coordinated opening of the crypto door. What none of them addressed was what a bank must hold in capital once it walks through.

What the Tokenized Securities FAQ Changed

The senators found their sharpest argumentative opening in the March 2026 joint FAQ. That guidance held that eligible tokenized securities should generally receive the same capital treatment as their non-tokenized equivalents, and that the technology used to record or transfer ownership should not govern capital allocation. Three agencies signing off on that principle gave the senators a logic they could press back to the same three agencies.

Capital treatment should reflect the risk characteristics of the underlying asset, not the technology used to record ownership.

Those words come from the senators’ May 27 letter to Bowman, Hill, and Gould. The March 2026 guidance covers eligible tokenized securities, and the letter presses regulators to extend the same technology-neutral principle to native digital assets. A tokenized Treasury bond receives the same capital treatment as a cash Treasury because the underlying risk profile governs its classification, the senators argue. Applied to Bitcoin, that logic would require regulators to calibrate the capital charge to the asset’s actual measurable risks rather than assign a blanket weight built for instruments where no such calibration is possible.

The International Capital Standard Is Under Scrutiny

The 1,250% treatment has a documented origin. The 2022 crypto market collapse showed how quickly losses could spread through institutions with interconnected crypto exposure. In their 2023 joint statement on crypto risk, the Fed, FDIC, and OCC cited price volatility, legal uncertainty around custody and ownership rights, contagion from exchange and counterparty failures, and operational risks tied to open or decentralized infrastructure. The Committee built the SCO60 standard around those concerns. A dollar-for-dollar capital charge was a genuine risk judgment.

That judgment is now under formal review. At its November 2025 meeting in Mexico City, the Committee agreed to expedite a targeted review of elements of its cryptoasset standard, citing recent market developments. Meeting virtually in February 2026, Committee members noted progress on that review and said an update would follow later in the year. The Committee’s chair, Erik Thedéen, has said the global crypto rules for banks need to be reworked, specifically because the United States and the United Kingdom both declined to implement the current framework. A coalition of major financial industry groups wrote to the Committee in August 2025, arguing the standard would make meaningful bank participation uneconomical and requesting a pause and revisions.

Michelle Bowman, the Fed’s Vice Chair for Supervision, has indicated the agency does not plan to adopt the Basel risk weights directly in the US domestic context. The three US regulators have the authority to build a domestic calibrated framework for liquid digital assets without waiting for the Committee’s international review to conclude.

Spot ETFs Hold the Float Banks Can’t Touch

How Institutional Bitcoin Access Works Now

US-traded spot Bitcoin exchange-traded funds (ETFs) have been the main institutional access channel for Bitcoin since their January 2024 launch. Spot Bitcoin ETFs logged $4.4 billion in net outflows across 13 consecutive trading sessions from May 15 to June 3, the longest outflow streak since the products launched, according to data tracked by Wallet Pilot. Institutional investors cut their ETF-held Bitcoin positions by 17% in the first quarter of 2026, reducing holdings from 313,000 BTC to 261,000 BTC, per CoinShares. Total assets under management across the US spot Bitcoin ETF complex dropped from $104 billion to $94 billion across the three-week outflow period.

The ETF channel works for institutional investors specifically because ETF issuers are not banks, and the holdings inside a fund don’t sit on bank balance sheets. Bitcoin inside a spot ETF is insulated from the capital regime that governs bank-held assets. That routing has been the dominant institutional access structure for two years, and the capital treatment is the reason why.

The Calibrated Capital Scenario

The senators’ letter contrasts two possible treatments, each with a different market structure implication.

A calibrated risk-weight band of 100% to 300% would cut the capital required on a $100 million Bitcoin exposure to between $8 million and $36 million at standard bank capital targets, making bank market-making, prime brokerage, and structured Bitcoin products viable lines of business. At the current treatment, none of those lines clear the economics. The senators’ letter presses the three regulators to act while Congress is still drafting the final market structure rules.

Congressional backers want the bill’s Senate floor vote before August; the capital treatment it skips is a decision only the three regulators named in the May 27 letter can make.

Disclaimer: This article is for informational purposes only and does not constitute investment or financial advice. Cryptocurrency markets carry significant risk, and regulatory changes can materially affect asset values. Consult a qualified financial professional before making any investment decisions. Figures are accurate as of the date of publication.