A report on a draft law from the European Parliament suggests that banks that hold cryptocurrency set aside a sizable amount of capital to guard against potential risk.
In a recent notice, EU legislators suggested applying a 1250% risk weight to banks’ exposure to digital assets to “adequately reduce the risks of these instruments for the institutions’ financial stability.” This is one of the highest risk ratings for investments. According to the proposed law, such requirements would be in force until December 30, 2024.
According to the report, the Union prudential framework should thoroughly reflect the rapid increase in the financial markets activity on crypto-assets and the potentially growing involvement of institutions in crypto-assets-related activities to adequately mitigate the risks of these instruments for the institutions’ financial stability. This is even more important given the recent negative events in the markets for crypto-assets.
The Basel Committee on Banking Supervision, or BCBS, had made recommendations regarding mitigating potential risks, and the parliament claimed the proposed approach was in line with those suggestions. Lawmakers said these rules should be implemented before 2025.
Cryptocurrency vs. EIB
A vote on the subject is anticipated in April. The draft bill stated that the European Commission should present a proposal on the crypto framework by June 30 while taking requirements under the EU’s Markets in Crypto-Assets framework, or MiCA. The proposed bill will then probably have the chance to be voted on by the entire parliament to become law.
In a related development, the European Investment Bank (EIB) announced at the beginning of February that it would issue its first-ever digital bond denominated in sterling using public and private blockchains.
The digital bond, valued at £50 million ($61.60 million), was executed in association with BNP Paribas, HSBC, and RBC Capital Markets, according to EIB.
Despite a challenging market environment and escalating geopolitical tensions, the European banking sector has proven to be resilient and adaptable. The industry’s ability to increase total assets in the face of challenging market conditions is evidence of its resilience.