EU Reaches Deal on Crypto Bank Capital Rules

The European Union (EU) struck a deal to adopt changes today (on Tuesday) requiring tougher bank capital rules in line with standards agreed internationally in the aftermath of the global financial crisis in 2008. In January, EU lawmakers had prescribed ‘prohibitive’ requirements on bank’s crypto holdings as part of the rules.

EU Agrees on Changes to CRR and CRD

The European Parliament’s Committee on Economic and Monetary Affairs announced the agreement on Tuesday via a Twitter post. The provisional agreement was reached after a meeting between negotiators from the EU Council, the Parliament and the Commission.

On Tuesday 27/06 @EP_Economics negotiators struck a dealon changes to Capital Requirements Regulation & Directive #CRR & #CRD @jonasfernandez w/ #EU2023SE details will follow pic.twitter.com/7eRCgk7Eg5

The agreement covers areas such as limits on leading banks' usage of their own internal models to measure capital requirements. However, the agreements still require the approval of the Council and Parliament before they can be formally adopted.

The changes to the bank capital rules are captured in the Capital Requirements Regulation (CRR) and Capital Requirements Regulation (CRD) which were both adopted in 2013 and reflect the ‘Basel III’ rules on capital measurement and standards. The Commission proposed the new rules back in 2021.

Basel III is the third set of Basel Accords, which are international banking rules developed by the Basel Committee on Banking Supervision (BCBS), one of the Bank's committees for International Settlements. The rules are geared at strengthening the regulations, supervision and risk management of the global banking sector.

Crypto in the Bank Capital Rules

According to CoinDesk, the EU Parliament’s Committee on Economic and Monetary Affairs in January voted to enforce strict restrictions on bank’s exposure to digital assets as part of the bank capital rules. The leaked version of a document setting out the proposed amendments seen by CoinDesk prescribes that EU banks should apply for a risk weight of 1,250% to crypto exposures until the end of 2024. This is the maximum level of risk, according to rules set by the BCBS.

Furthermore, Markus Ferber, the economic spokesman for one of the Parliament's political groups, in a statement released in January noted that: “banks will be required to hold a euro of own capital for every euro they hold in crypto.” Ferber added that: “such prohibitive capital requirements will help prevent instability in the crypto world from spilling over into the financial system.”

However, the Council in a statement on Tuesday simply stated: “Negotiators also agreed on a transitional prudential regime for crypto assets,” without providing details on the cryptocurrency portion of banks' capital rules.

Meanwhile, central banks under the Banks for International Settlements in December last year endorsed a global prudential standard for banks’ exposure to crypto assets. The standard, which prescribes 2% to crypto reserve exposure among lenders, is expected to go live on January 1, 2025.

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