The European Union (EU) has reached an agreement on new bank-capital legislation, which includes regulations for cryptoassets. The proposed rules aim to prevent unbacked crypto from entering the traditional financial system. Negotiators sought to incorporate Basel III standards into EU legislation, which focuses on strengthening the global banking system through stricter capital, liquidity, and leverage requirements for banks. One of the proposed changes is a risk weight of up to 1,250% for cryptocurrencies, meaning banks would need to own over one euro for every equal value of crypto assets. This agreement is seen as a major step forward in ensuring banks can operate in the face of external shocks. However, the proposals still need to be voted on by member states and the EU parliament.
The Basel Committee on Banking Supervision has recommended that a bank’s exposure to certain crypto assets should not exceed 2% and generally be lower than 1%. However, it is up to individual jurisdictions to adopt these rules by January 2025. Banks continue to view crypto as a risk due to its volatility. Policymakers and regulators are grappling with how to manage this volatility and there is a case for imposing capital requirements on digital asset holdings. The concern is whether these requirements are aimed at fostering stability or discouraging the adoption of digital assets.
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