In a significant development, the European Union (EU) has finalized a political deal on new bank-capital legislation, specifically addressing regulations for crypto assets. The deal aims to establish rules that prevent unbacked cryptocurrencies from entering the traditional financial system.
The announcement came after a meeting among representatives from the European Parliament, national governments, and the European Commission. The proposed rules, which also introduce substantial changes to how banks assess risk in corporate and home loans, will now undergo a voting process within member states and legislative bodies before becoming law, a process that could span several months.
EU Prioritizes Resilience with Updated Bank-Capital Rules
The new regulations are designed to strengthen and enhance the resilience of banks operating within the EU, according to Swedish Finance Minister Elisabeth Svantesson, who chaired the discussions on behalf of EU member states. The deal also includes a transitional prudential regime for crypto assets, though further details have not been disclosed.
Svantesson said: “After intense negotiations, we have reached an agreement on updated rules which we believe will boost the strength and resilience of banks operating in the Union. This is a major step forward which will help ensure that European banks can continue to operate also in light of external shocks, crises, or disasters. The swift implementation of global standards is also an important signal for our international partners and the EU’s continued commitment to international cooperation and multilateralism.”
While international standard-setters at the Basel Committee on Banking Supervision are finalizing a global rulebook for crypto banking, early indications suggest a stringent approach with a maximum risk weight of 1,250% assigned to free-floating cryptocurrencies. This means that banks would be required to hold one Euro of capital for every Euro of Bitcoin (BTC) or Ethereum (ETH) they possess, potentially discouraging their involvement in the market. EU parliamentarians, however, are eager to see these measures implemented sooner rather than later.
During the negotiations, the European Commission proposed a compromise that would relax the strict stance on regulated stablecoins, a proposition that has garnered support from EU governments. Agreement among member states is crucial for the bill to become law.
The EU’s move to establish comprehensive bank-capital rules for cryptocurrencies marks a significant milestone in the regulation of the digital asset space. As the global crypto banking landscape takes shape, market participants will closely monitor the EU’s approach and its potential implications for the industry.
