Banks to Back Crypto Assets With 1,250% Capital

According to a Reuters report, the new draft law, if approved, would implement the remaining reforms of Basel III.

Basel III is an international set of rules created by the Basel Committee on Banking Supervision in response to the financial crisis of 2008, which aims to strengthen banks’ regulation and risk management.

Part of the draft states that banks must put aside a high capital reserve to back their crypto asset holdings. Upon approval, the rule would require affected banks to apply a risk-weighting of 1,250% of capital to such exposures in case the crypto assets completely lose their value. The Basel Committee recommended the risk-weighting standard in December 2022.

Another section of the draft law also introduced new regulations for shadow banks. Shadow banks are financial institutions that engage in bank-like activities but belong outside and are less regulated than the traditional banking sector.

The reforms asked the EU’s executive European Commission to publish a report by June this year, evaluating the possibility of enacting laws that curtail the exposure of traditional banks to shadow banks.

Furthermore, the draft required that banking policies should be amended to align with institutions’ transition plans to handle governance, social, and environmental risks over the long, medium, and short term.

After Tuesday’s vote, the parliament and EU member states will reach a final agreement scheduled for 2025.

EU Still Pushing for Crypto Adoption

Even as the EU attempts to develop stricter laws for local banks and financial institutions, it is still pushing for crypto adoption.

Crypto Saving Expert reported last year that the union disclosed it was working on a strategy that would utilise blockchain technology and non-fungible tokens (NFTs) to right the counterfeiting of real-world goods in 2023.

Furthermore, the European Central Bank (ECB) accelerated its central bank digital currency (CBDC) plans that same month by partnering with five companies to develop potential user interfaces for the digital Euro.

~ By William A. Frederick ~