European lawmakers have passed a package of amendments, which include that banks should maintain greater capital before buying cryptocurrencies.
The new rule would impose stringent new regulations on banks that engage in cryptocurrency transactions as the Economics and Monetary Affairs Committee of the European Parliament approved cross-party concessions requiring banks to hold more capital against future crypto losses.
EU lawmakers agree to new rules for banks
A Committee representative confirmed that the agreed rules include a need for banks to declare their exposure to cryptocurrencies.
The EU lawmakers’ vote is a component of attempts to align European regulations with those proposed by the Basel Committee on Banking Supervision a year ago. The group of supervisory agencies stated that there should be restrictions on the amount of a bank’s capital that might be exposed to crypto assets and outlined guidelines to be adopted by the beginning of 2025.
Holding greater capital than cryptocurrencies
However, the whole text of the modifications accepted by the EU Parliament’s Economics and Monetary Affairs Committee has not yet been made public.
But they are based on a report draft submitted by Ville Niinisto, a Finnish MEP, in 2021.
These amendments specified that cryptocurrencies, such as stablecoins, whose value is dependent on a reference asset should be subject to the same risk weights as the reference asset, whereas unbacked cryptocurrencies would have a risk weight of 1,250%.
Additionally, the plan restricts an institution’s total exposure to unbacked crypto assets to no more than 1% of its Tier 1 capital, which is the bank’s reserve reserves.