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FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets

A bank supervisor assesses a bank's exposure to unbacked crypto assets under the Basel Committee's prudential treatment, which places such assets in the most conservative group. A bank holds a crypto exposure of 40 million. Assuming a 1,250% risk weight applies and capital ratio of 8% of RWA, what is the minimum capital the bank must hold against it, and how does this compare to the exposure?

The bank must hold 40 million, equal to 100 percent of the exposure. A 1,250 percent risk weight gives risk-weighted assets of 500 million, and 8 percent of that is 40 million, so the treatment effectively requires a full deduction of the exposure from capital.

  1. A3.2 million, 8% of the exposure
  2. B32 million, 80% of the exposure
  3. C40 million, 100% of the exposureCorrect
  4. D50 million, 125% of the exposure

Explanation

RWA = 40m × 12.5 = 500m. Capital at 8% = 40m, which equals the full exposure. Option A ignores the risk weight; option B applies 800%; option D applies 12.5 to capital rather than RWA.

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