The European Union (EU) has recently reached a political deal on new bank-capital legislation, which includes regulations for crypto assets. The deal, which had been proposed by the European Commission in 2021, introduces controversial changes on how banks evaluate risks for corporate and home loans. The legislation also adjusts the risk weighting for banking assets such as corporate loans with the goal of strengthening and making the banks more resilient. This deal must now be voted on by member states in the EU’s Council and lawmakers to be enacted, a process that may take several months.
The EU’s Council statement confirmed that the deal includes a “transitional prudential regime for crypto assets” but no further details have been provided. However, the Basel Committee on Banking Supervision, an international standard-setting organization for banking regulations, is working on a global crypto banking rulebook, which already suggests strict measures concerning free-floating cryptocurrencies. This means that banks would have to issue one euro of capital for each euro of bitcoin (BTC) or ether (ETH) they hold, giving them limited incentive to invest in the market.
Despite the Basel Committee’s tough stance, EU lawmakers appear to be pushing for quicker implementation of these measures. They have proposed that regulated stablecoins be subject to softer regulations, which seems to have gained favor among EU governments.
Swedish Finance Minister Elisabeth Svantesson, who chaired the talks on behalf of EU member states, stated that the overall legislative changes would “boost the strength and resilience of banks operating in the Union.” However, lawmakers have expressed concern regarding unbacked cryptocurrencies, prompting them to seek prohibitive rules to keep them out of the traditional financial system.
The legislation’s passing would have significant implications for the crypto market, particularly in how it is perceived and regulated by major financial institutions. The EU’s move is just one of many by regulators around the world to address the growing influence of cryptocurrencies and stablecoins in the global financial system.