EU banks would have to place the maximum possible risk weight on crypto assets under a draft law published by the European Parliament on Friday.
The planned rules could determine how the traditional financial sector engages with digital assets. Under the deal, as previously reported by CoinDesk, banks would have to disclose their direct and indirect exposure to crypto, while the European Commission prepares more fine-grained rules for the sector.
“The potentially increasing involvement of [financial] institutions in crypto assets-related activities should be thoroughly reflected in the Union prudential framework, in order to adequately mitigate the risks of these instruments for the institutions’ financial stability,” said an explanatory text by the parliament’s Economic and Monetary Affairs Committee. “This is even more urgent in light of the recent adverse developments in the crypto-assets markets.”
The proposed risk weight of 1,250% offers little incentive for banks to hold crypto, as – unlike other assets such as mortgages – banks would have to hold capital to match the amount of crypto they have.
The draft law asks the European Commission to propose further legislation by June to implement international capital standards set by the Basel Committee on Banking Supervision. The committee has proposed imposing a hard cap on banks’ holdings of unbacked crypto such as bitcoin (BTC), a suggestion which does not appear to be included in the EU’s legal draft.
Before passing into law, the EU member governments meeting as the Council and the parliament must agree on the proposals.
Author
Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
