The European Union (EU) has reached agreement on new banking capital legislation, including regulations for crypto assets. Among the proposals are strict rules to prevent unsupported cryptocurrencies from entering the traditional financial system.
A trio of negotiators on Tuesday agreed to changes to the regulation of capital requirements and guidance. The European Parliament’s Committee on Economic and Monetary Affairs proposed the rules for the first time in 2021. Negotiators sought integration Basel 3 The standards, which were developed in response to the 2008 financial crisis, are in EU legislation. Basel III aims to enhance the stability of the global banking system through stricter capital, liquidity and leverage requirements for banks. These standards mandate higher levels of capital quality, ensure liquidity during stress, and constrain debt.
European Union: Crypto must be supported by other assets
proposed on Tuesday the changes It included a suggested risk weight of 1,250% for cryptocurrencies. Meaning, banks would have to own more than 1 euro for every equal value of crypto-asset.
in official statementSwedish Finance Minister Elisabeth Svantesson, who chaired the talks, referred to this as a “major step forward”. The agreement will help ensure banks can continue to operate in light of external shocks, crises or disasters.
Representatives from the European Parliament, the European Commission and national governments participated in the discussions. However, nothing is final yet. Member states and the EU Parliament must still vote on the proposals.
Back in December 2022, the Basel Committee on Banking Supervision (BCBS), the global industry standard-setting organization that designed the Basel III standards, argued that a bank’s exposure to certain crypto assets should not exceed 2% and should generally be less 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 view cryptocurrencies as a risk
Brian D. Evans, CEO and founder of BDE Ventures, an advisory firm and web3 venture studio, told BeInCrypto that deep concern remains among policymakers and regulators about the volatility of digital assets.
“Big price spikes, followed by big pullbacks, is something unique and different,” he said. Few other assets are volatile in this sense. And I think traditional financial institutions and regulators are trying to get their heads around how to manage that volatility.”
In Evans’ view, there is a case for imposing some kind of capital requirement regarding holdings of digital assets.
“After all, look what happened to the likes of Celsius and BlockFi — they were basically banks that got excessively indebted and subsequently imploded,” Evans noted.
“But the question here is whether or not the proposed capital requirements for banks are designed to promote stability, or whether or not they are designed to discourage the adoption of digital assets,” he added.
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