Prohibitive Capital Rules for Banks Holding Crypto Win Backing in European Parliament CryptoBlog

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European Union lawmakers have backed legislation imposing new capital requirements on financial institutions, including strict rules intended to cover crypto-related risks. These relate to banks holding digital assets and are expected to come into force in January 2025.

EU lawmakers approve draft law implementing Basel III rules on bank capital

Members of the European Parliament’s Economic and Monetary Affairs Committee (ECON) on Tuesday backed a bill to implement the latest global bank capital rules. Reuters noted in a report that lawmakers have also incorporated specific requirements regarding the risks associated with crypto assets.

The general rules are part of the Basel III reforms, a set of internationally agreed measures developed by the Basel Committee on Banking Supervision in the aftermath of the 2007-2009 financial crisis. Their main objective is to strengthen the supervision and risk management of banks.

Other jurisdictions, including the United States and the United Kingdom, are also moving in the same direction. However, ECON introduces additional regulations with the EU bill, requiring banking institutions to hold enough capital to fully cover crypto assets.

Banks will be required to hold one euro of their own capital for every euro they hold in crypto, explained Markus Ferber, center-right member of the committee from Germany. He precised :

These prohibitive capital requirements will help prevent instability in the crypto world from spilling over into the financial system.

ECON takes a harder line than EU member states

The changes, which are in line with recommendations from global banking regulators, represent an interim measure pending new legislation. An earlier version of the bill has already been approved by member states and the European Parliament will have to negotiate the final draft with them.

EU states have taken a more accommodating approach to when foreign banks providing services to European customers must open a branch or turn one into a more capitalized one. ECON members have taken a harder line, the report notes.

A tune-up is to be expected. For example, the Association of Financial Markets in Europe (AFME) pointed out that the draft does not contain a definition of crypto assets. The industry organization believes it could eventually be applied to tokenized securities.

AFME also says the EU should avoid a possible negative impact of tightening access to international markets and cross-border services as it seeks to consolidate its autonomy in capital markets in the face of competition from the UK. , following Brexit.

Last summer, EU institutions and member states reached an agreement on new EU legislation on Crypto Asset Markets (MiCA). The package is due to come into force in 2023, but businesses will still have 12 to 18 months to comply.

Keywords in this story Banking Institutions, Banks, Capital Regulation, Capital Requirements, Capital Rules, Committee, Crypto, Crypto Assets, Crypto Regulations, Cryptocurrencies, Cryptocurrency, ECON, EU, European Parliament, Europe, European, European Parliament, European Union, risks, rules

Do you think the European Parliament will adopt stricter capital requirements for banks holding crypto-assets? Share your expectations in the comments section below.

Lubomir Tassev

Lubomir Tassev is a tech-savvy Eastern European journalist who loves Hitchens’ quote: Being a writer is who I am, rather than what I do. Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.

Image credits: Shutterstock, Pixabay, Wiki Commons, Alexandra Lande / Shutterstock.com

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