Ripple (XRP) Can Support Banks In Meeting This Major Requirement

Crypto researcher SMQKE has highlighted a potentially transformative role for XRP in helping banks fulfill Basel III liquidity rules. His analysis suggests that Ripple’s digital asset could replace idle cash in global reserves, reducing costs and unlocking greater capital efficiency.

Under Basel III, banks must hold high-quality liquid assets (HQLA) to satisfy the Liquidity Coverage Ratio (LCR). These requirements force banks to maintain large pre-funded nostro/vostro accounts around the world—a business inefficiency that locks up capital.

XRP as a Universal Bridge Asset

SMQKE argues that XRP can act as a single, bridgeable reserve on a bank’s balance sheet. Rather than holding multiple currencies in global accounts, banks could hold XRP and use it to source liquidity on demand.

This aligns with Ripple’s On-Demand Liquidity (ODL) model, which enables instant conversion between fiat currencies through XRP without pre-funding.

Regulatory Recognition and Compliance

A pivotal part of SMQKE’s case is a reported Basel Committee letter, dated August 19, 2025, referenced in his post. According to this letter, XRP qualifies as a “Group 2A” crypto asset under three specific hedging-recognition tests.

This classification suggests that banks could count XRP toward regulatory liquidity metrics under Basel’s prudential framework.

Cost Reduction and Operational Efficiency

By consolidating liquidity in XRP, banks may dramatically reduce their foreign-exchange hedging costs, lower treasury overhead, and shrink payments operations teams. SMQKE’s analysis draws on Ripple’s own models, which estimate significant savings from using XRP instead of funding dispersed nostro accounts.

Holding XRP could free up what is now dormant capital in foreign reserves. Instead of tying up low-yield cash across jurisdictions, banks can deploy XRP for actual liquidity. The resulting capital release could improve return on equity and reduce the regulatory burden associated with Basel III.

Risks and Practical Considerations

Despite the promise, some hurdles remain. XRP’s price volatility could deter risk-averse institutions from holding it long term. Market liquidity must mature for on-demand settlement to scale. And broader regulatory certainty remains crucial—classification under Basel standards must persist, and banks must adopt it.

SMQKE’s insight shines a light on a bold but increasingly credible use case for XRP: not just a payment rail, but a regulatory-compliant liquidity tool.

If banks begin to embrace XRP as a universal bridge asset, they may unlock billions in capital, streamline operations, and meet Basel III’s liquidity demands more efficiently. For Ripple, this could mean real integration into the core of modern banking.