EU regulator tells banks to impose Bitcoin limits before they become law
Although the global regulatory framework set by the Basel Committee on Banking Supervision (BCBS) will not become legally binding until 2025, the European Central Bank (ECB) expects banks in the European Union (EU) to begin capping Bitcoin (BTC) holdings in the meantime .
In fact, ECB regulators cited the “significant risk and boom-and-bust cycles” of cryptocurrencies and advised banks planning to introduce them into their operations to start planning compliance with the upcoming law right away in their 15th newsletter. February.
While acknowledging that some banks “have explored opportunities” to use blockchain to improve efficiency, reduce costs and offer new services to customers, regulators said digital assets are “not widely used in mainstream banking” yet.
Deal with risk in advance
However, they believe that “the expansion of the crypto industry could also lead to risks of crypto assets spilling over into the banking sector,” and “if a bank were to acquire exposures to crypto assets – either directly or indirectly – they would face significant risks not specifically covered by the current supervisory framework.”
Therefore, to avoid potential problems, the ECB recommends such banks:
“The BCBS standard is not yet legally binding pending transposition in the EU. However, if banks wish to engage in this market, they are expected to comply with the standard and take it into account in their business and capital planning.”
Up to 1% Bitcoin cap
As a reminder, the committee hosted by the Bank of International Settlements (BIS) recently proposed that banks assign the highest possible risk weight of 1,250% to unbacked digital assets such as Bitcoin, meaning they must issue capital equal to their crypto holdings, and limit those holdings to 1% of core capital.
Specifically, they grouped cryptocurrencies into two groups – Group 1, which includes tokenized traditional assets and stablecoins that meet classification conditions, and Group 2, which refers to assets that do not meet classification conditions and includes “non-backed digital assets”, as well as specific stablecoins and tokenized traditional assets.
In October, Finbold reported on BCBS’s Basel III Monitoring Report, which found that the total exposure to digital assets by global banks remained relatively low, amounting to approximately €9.4 billion or approximately 0.14% of total crypto exposure to banks worldwide, while considering the banks that do not report such exposures, this amount fell to 0.01%.
