EU Seeks To Curb Banks’ Holdings Of Cryptocurrency

Legislators in the European Union voted to draft a plan. The proposed project would require banks holding crypto assets to have “prohibitive” capital requirements. The draft cites the necessity for stricter controls in light of the recent instability in the market.

Lawmakers pointed to the recent market volatility stress for legislation. Adopting this law is a component of a more comprehensive package of rules. The purpose is to bring the EU into compliance with worldwide standards. The reason is that recent incidents like the failure of FTX, Celsius, and others are still fresh in users’ minds.

The European Parliament announced on Jan. 24 that the committee had decisively approved changes to its Capital Requirements Regulation and Capital Requirements Directive. Those changes would apply to banks holding cryptocurrency. The proposed rule would force banks to keep a “risk-weighted exposure amount.” But this approach depends on their exposure to cryptocurrencies of up to 1,250% of their capital.

Major Proposed Limits On Cryptocurrency

Related Reading | The European Union Is Examining Its Options For A Digital Euro

  • According to a Reuters article, legislators in the European Union have decided to impose tight capital requirements on banks holding cryptocurrency.
  • Bitcoin ownership by banks would be limited to 2% of total capital, but they would also need to hold one euro in capital for every euro in cryptocurrency.  
  • Markus Ferber, the economic spokesman for the European People’s Party in the EU parliament, advised banks to hold one euro of their capital for every euro they have in cryptocurrencies to “prevent instability in the crypto world from spilling over into the financial system.”
  • If the European Parliament approves the final bill, it will come into effect in January 2025.
  • The proposal, according to the Association for Financial Markets in Europe, does not define crypto assets and might therefore be applied to tokenized securities.

The Economic and Monetary Affairs Committee of the European Parliament accepted the measures. However, those measures still need the approval of the entire European Parliament. The national finance ministers in the Council of the European Union EU Seeks To Curb Banks’ Holdings Of Cryptocurrency. T

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