EU Votes To Allow Banks Hold 2% Of Capital In Bitcoin

[Husires]

As Reuters reports the Economic Affairs Committee of the European Parliament on Tuesday approved a bill to implement the final stage of the post-financial crisis global bank capital rules (Basel-III) starting in January 2025

In doing so, the European Union is following the Bank of International Settlement (BIS), which essentially divides cryptos into two distinct groups. Group 1 represents tokenized assets and stablecoins with approved stabilization mechanisms, while it is questionable whether Tether or USDC meets the requirements.

Group 2 includes stablecoins without BIS-approved stabilization mechanisms and volatile cryptocurrencies. This group classification entails that Bitcoin, Ethereum, and other cryptos require banks to apply a “risk weight” of 1,250%.


This means that European banks must hold more than one euro of free capital for every euro of cryptocurrencies. Markus Ferber, a German member of the European People’s Party in the EU Parliament, said that the effort is designed to “prevent instability in the crypto world from spilling over into the financial system.”

In addition, the new directive stipulates that banks can hold a maximum of 2% of their capital in Bitcoin and other cryptocurrencies, while the European Parliament’s economic committee endorsed several temporary derogations to give banks more time to adjust.

Already last year, the BIS Basel Committee warned against cryptocurrencies. Since then, banks have been advised to allocate a maximum of 1% of their total assets to cryptocurrencies.

Source: https://bitcoinist.com/eu-law-banks-hold-2-in-crypto-bitcoin/

This approval is still the first step and it still needs the approval of the European Parliament at the next meeting, but what legislators are pushing for that is the chaos in the cryptocurrency market, especially what happened in recent months as an additional argument for these legislations.

[pawel7777]

The Bitcoinist article headline makes it sound like a great news, but if I understand this right, they are only imposing restrictions on the maximum banks are allowed to hold (and introducing free capital/crypto ratio requirement).

Already last year, the BIS Basel Committee warned against cryptocurrencies. Since then, banks have been advised to allocate a maximum of 1% of their total assets to cryptocurrencies.

This suggests that the banks were already allowed (or not prohibited) from holding crypto, with the "1%" being only a recommendation. That being said, I don't recall of any major bank having any cryptos on their balance sheets.

[jackg]

The good news here (as has been seen before) might be that banks can class cryptocurrencies as currency reserves and not assets and that's quite surprising imo anyway (things like stocks, gold or oil can't be iirc).

The 2% is small though and I wonder what bank will do that if they could just incorporate another company to handle crypto investments and invest in that with the 97% of virtual funds they have (rather than using the 0-3% of cash reserves they actually hold).

[Poker Player]

We will have to see how this develops. I remember that this cycle was called the institutional adoption cycle, but it is being a bit decaffeinated by the whole leverage explosion, and except for the enthusiastic buying of MSTR, we haven't achieved massive institutional adoption either. With news like this, I think we will reach it, but maybe it will take another cycle or two, where it will be more common for companies to hold part of their reserves in Bitcoin, or even banks, rather than in gold or other assets.