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EU Finalizes Agreement on Capital Requirements for Banks Holding Crypto Assets

2 mins
Updated by Michael Washburn
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In Brief

  • The European Union has reached a political agreement on new bank-capital legislation.
  • The proposed changes aim to integrate the Basel III standards into EU legislation.
  • The standards, designed after the 2008 crash, are designed to strengthen the stability and resilience of the global banking system.
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The European Union (EU) has come to an agreement on new bank-capital legislation, including regulations for cryptoassets. Among the proposals are strict rules to prevent unbacked crypto from entering the traditional financial system.

A triad of negotiators agreed on Tuesday to changes to the Capital Requirements Regulation & Directive. The European Parliament’s Economic and Monetary Affairs Committee first proposed the rules back in 2021. Negotiators sought to integrate Basel III standards, developed in response to the 2008 financial crisis, into EU legislation. Basel III aims to strengthen the stability of the global banking system through stricter capital, liquidity, and leverage requirements for banks. These standards mandate higher levels of quality capital, ensure liquidity during stress, and restrict debt.

EU: Crypto Should Have Backing of Other Assets

Tuesday’s proposed changes included a proposed risk weight of up to 1,250% for cryptocurrencies. Meaning banks would have to own over one euro for every equal value of crypto assets.

In an official statement, Swedish Finance Minister Elisabeth Svantesson, who chaired the talks, referred to it as a “major step forward.” The agreement will “help ensure that banks can continue to operate in light of external shocks, crises or disasters.”

Discussions involved representatives from the European Parliament, the European Commission, and national governments. However, nothing is final yet. Member states and the EU parliament will still have to vote on the proposals.

Learn about the perceived pros and cons of regulating the crypto industry: Crypto Regulation: What Are the Benefits and Drawbacks?

Back in December 2022, the Basel Committee on Banking Supervision (BCBS), the industry’s global standard-setting organization that designed the Basel III standards, argued that a bank’s exposure to certain crypto assets must not exceed 2% and should generally be lower than 1%, among other recommendations.

However, it is up to individual jurisdictions whether to adopt the rules by the proposed date of January 2025.

Banks Still See Crypto as a Risk

Brian D. Evans, the CEO and founder of BDE Ventures, a web3 venture studio and advisory firm, told BeInCrypto that deep concern persists among policymakers and regulators about the volatility of digital assets.

“The big price booms, followed by the big drawdowns, are something unique and different,” he said. “Few other assets are as volatile in this sense. And I think traditional financial institutions and regulators are trying to get their heads around how to manage this volatility.”

In Evans’s view, there is a case for imposing some kind of capital requirement with regard to digital asset holdings.

“After all, look what happened to the likes of Celsius and BlockFi – they were essentially banks that got way overleveraged and subsequently imploded,” Evans observed.

“But the question here is whether or not the proposed capital requirements for banks are designed to foster stability, or whether or not they’re designed to discourage the adoption of digital assets,” he added.

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Josh Adams
Josh is a reporter at BeInCrypto. He first worked as a journalist over a decade ago, initially covering music before moving into politics and current affairs. Josh first owned Bitcoin in 2014 and has followed the space ever since. He is particularly interested in Web3 adoption, policy and regulation, CBDCs, privacy, and the future of the metaverse.