EU wants to force banks to give cryptos the highest risk rating

Under the new rules of the European Union, banks that own cryptocurrencies are required to assign these digital assets the highest risk rating.

It published bill requires banks to assign a risk weight of 1,250% to all cryptocurrencies they own, meaning they are required to hold the same amount of capital to back their crypto holdings. Nevertheless, these rules have yet to be approved by parliament.

Going forward, banks may need to comply with a wider range of new requirements set out in a Basel Committee on Banking Supervision (BCBS) document published at the end of December 2022 and expected to come into effect in January 2025.

The EU imposes very strict rules on banks

The capital requirements of the Basel Committee differ depending on the type of crypto asset being assessed. According to the documentation, well-known cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) are considered Group 2 crypto assets. Group 2 assets are divided by the commission into groups A and B depending on whether they can be traded on regulated public markets via ETFs or other derivatives. Group 2 B assets are assigned a suggested risk weight of 1,250%, while Group 2 A has lower requirements.

However, other types of crypto-assets, such as tokenized versions of traditional assets such as stocks, certain types of stablecoins, and possible Central Bank Digital Currencies (CBDCs), will be subject to lower capital requirements and considered part of Group 1.

In addition, under the new rules, there will be strict limits on the amount of ‘Type 2’ cryptocurrencies that banks are allowed to hold on their balance sheets. A bank’s total exposure to Group 2 crypto-assets cannot exceed 2% of the bank’s capital and should generally be less than 1%, under the proposed rules.

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