European Banks Must Fully Cover Crypto Holdings With Capital, Draft Text Says
A leaked proposal that faces a vote on Tuesday deems crypto assets to be the riskiest kind, in line with emerging international guidelines
Banks will have to treat crypto as among the riskiest class of holdings, according to a leaked document listing the final set of proposed amendments to a 2021 package intended to bring European Union bank capital rules into line with international norms.
The amendments to the package, which is designed to ensure that traditional institutions issue enough capital to sustain lending levels, are set to be voted on by EU Parliament’s Committee on Economic and Monetary Affairs on Tuesday. The text seen by CoinDesk asks the European Commission to propose a bill by June 2023, and says banks should apply a 1,250% risk weight to crypto exposures until the end of 2024.
Under global banking rules set by the Basel Committee on Banking Supervision, that is the maximum possible deemed level of risk. It would, in practice, mean banks cannot gain any leverage, and must issue one euro of capital for each euro of crypto held.
“The existing prudential rules are not designed to adequately capture the risks inherent to cryptoassets,” says an explanatory text accompanying the proposed law. “This is even more urgent in light of the recent adverse developments in cryptoasset markets.”
The commission’s more detailed legal proposal, called for by the end of 2024, would have to offer a fine-grained analysis of the risks of different crypto assets, as well as liquidity requirements. Banks should also disclose their crypto exposure and risk management policies, the proposals said.
In December, the Basel Committee, a group of regulators and central bankers from across the world, said banks should treat crypto with caution, with unbacked assets such as bitcoin limited to 1% of their Tier 1 capital, a core class of financial instrument seen as a measure of an institution’s resilience.
The compromise proposal is based on one submitted by Green party lawmaker Ville Niinisto last year. If agreed in Tuesday's vote, it will still need to be approved by the parliament’s 751 lawmakers and by national governments who meet in the EU’s Council.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.