EU Establishes Comprehensive Framework for Capital Requirements in Crypto Banks

The European Union (EU) has achieved a significant milestone by reaching a political agreement on new bank-capital legislation, which encompasses regulations for crypto-assets. The agreement comes as a response to concerns about unbacked cryptocurrencies entering the traditional financial system, prompting lawmakers to propose restrictive measures.

The announcement of the deal was made via a tweet from the European Parliament’s Economic and Monetary Affairs committee. The agreement was forged after a meeting involving representatives from the European Parliament, national governments, and the European Commission, which initially introduced the proposed rules in 2021.

The new legislation must undergo voting to take effect

For the legislation to take effect, it must undergo a voting process by member states in the EU’s Council and by lawmakers, which can be a time-consuming procedure lasting several months. Alongside regulations for crypto-assets, the political deal also introduces extensive and controversial changes to the evaluation of risk associated with corporate and home loans.

Swedish Finance Minister Elisabeth Svantesson, who chaired the negotiations on behalf of EU member states, highlighted that the new rules aim to enhance the strength and resilience of banks operating within the Union. The Council statement confirmed the inclusion of a “transitional prudential regime for crypto assets,” but did not provide further specifics.

While the Basel Committee on Banking Supervision is finalizing global standards for crypto banking regulations, initial details suggest an uncompromising approach with a maximum risk weight of 1,250% assigned to free-floating cryptocurrencies. This means that banks would have to hold one euro of capital for each euro of bitcoin (BTC) or ether (ETH) they possess, providing little incentive for market participation. EU parliamentarians express a desire to implement these measures sooner rather than later.

During the talks, the European Commission introduced a compromise proposal that slightly eases the stringent stance on regulated stablecoins. This proposal has garnered support from EU governments, which also need to agree for the bill to be enacted into law.