EU reaches deal on capital requirements for banks holding crypto

EU lawmakers have agreed on capital requirements for banks holding crypto, as part of a transitional regime until more extensive reforms are implemented.

The bloc's MEPs agreed Tuesday for a transitional prudential regime for crypto assets and on amendments to enhance banks' management of ESG risks. The regime will take effect until the European Commission (EC) implements the Basel III banking reforms, and aims "to make sure that banks will have to disclose their exposure to crypto-assets."

Referring to risk assets such as un-backed cryptocurrencies, MEPs stated "The Commission should come up with a relevant legislative proposal to implement these future Basel standards and specify the prudential treatment of such exposures during the transitional period."

MEP Jonás Fernandez added the transitional arrangements will include "setting capital requirements for crypto assets until the Commission puts forward a specific legislative proposal." He added the new banking legislation should lower the risk of future banking crises.

Specific details to follow

The announcement was tweeted by the European Parliament Committee on Economic and Monetary Affairs, which stated that "details of the deal will follow." The deal, which also introduces changes to how banks assess the risk of corporate and home loans, must now be voted on by member states in the EU’s Council and by lawmakers to become legislation.

In January, the European Parliament's economic affairs committee approved a draft law to implement Basel III capital rules from early 2025. At that time MEPs voted to impose strict restrictions on banks seeking to hold crypto. In a January statement Markus Ferber, the economic spokesman for the Parliament's largest political grouping, said, “Banks will be required to hold a euro of their own capital for every euro they hold in crypto and such prohibitive capital requirements will help prevent instability in the crypto world from spilling over into the financial system."

Global standards for regulating bank exposure to crypto assets are being finalized at the Basel Committee on Banking Supervision. The details so far suggest a tough line on the prudential treatment for bank crypto-asset exposure. The Basel III agreement was a response to the Global Financial Crisis of 2007/2008. Drafted by the EU and its G20 partners, it comprises several measures to enhance prudential regulatory standards, supervision, and risk management of banks.