Banks Could Hold XRP with a Simple Regulatory Tweak Under Basel III

Despite growing institutional interest in digital assets, major banks have largely avoided holding XRP directly on their balance sheets. However, industry observers suggest that a minor adjustment to international banking regulations under Basel III could remove the primary obstacle preventing financial institutions from adding the cryptocurrency to their portfolios.

Current Landscape

Multiple sources confirm that banks have remained cautious about directly holding XRP, even as interest in digital assets surges across the financial sector. This hesitation is not rooted in concerns over XRP's utility or market demand but rather in stringent regulatory capital requirements that make holding the asset economically impractical under current international frameworks.

Regulatory Barriers

According to reporting from NewsBTC and BITRSS, the key issue lies in how XRP is classified under Basel III, the global regulatory framework introduced after the 2008 financial crisis. Basel III imposes significantly higher capital requirements to mitigate systemic risk, and XRP is currently categorized as a Type 2 crypto exposure—placing it in the high-risk asset category.

This classification means banks must apply a 1,250% risk weight to XRP holdings, requiring $12.50 in regulatory capital for every $1 of XRP exposure. Such steep requirements make holding XRP financially unfeasible for most banks, as the capital could be more effectively allocated to lending or other revenue-generating activities with lower reserve demands.

Crypto commentator Stern Drew recently highlighted this issue on social media platform X, emphasizing that institutional adoption of XRP is being hindered by regulatory classification rather than technological or market factors.

Unanswered Questions

While the regulatory framework creating this barrier is well-documented, several aspects of potential change remain unclear. For instance, it is uncertain what specific adjustment to Basel III would reclassify XRP to a lower-risk category, or whether global regulatory bodies are actively considering such modifications. Additionally, the criteria for reclassification and the entities responsible for making such determinations have not been defined.

Stern Drew's commentary has drawn attention to the issue, but the broader context and details of his analysis are limited in the available reporting.

Implications for the Financial Sector

This regulatory dynamic represents a pivotal moment for cryptocurrency adoption within traditional finance. If XRP or similar digital assets were reclassified to carry lower capital requirements, it could unlock significant institutional demand and reshape how banks interact with cryptocurrencies.

For XRP specifically, regulatory clarity has been a long-standing concern, particularly following Ripple's legal battle with the U.S. Securities and Exchange Commission. While Ripple achieved a favorable outcome in that case, the Basel III classification remains an independent hurdle at the international level.

More broadly, this situation underscores how post-2008 banking regulations—designed to curb excessive risk-taking—may inadvertently slow institutional adoption of emerging asset classes. Any adjustment to these rules could set important precedents for how other cryptocurrencies are treated under global banking standards.

Key Entities

• XRP: The cryptocurrency at the center of this regulatory discussion.
• Basel III: International banking regulations imposing high capital requirements.
• Stern Drew: Crypto commentator spotlighting the issue.
• Banks: Financial institutions seeking clarity on digital asset holdings.

Sentiment

The outlook for XRP adoption among banks remains bullish, contingent on regulatory adjustments.