The EU has launched a new bill on the fourth Money Laundering Directive, which is scheduled to enter into force in 2020. Until now, banking institutions were prohibited from offering virtual assets or storing them for their customers. The German Bundestag has taken this EU law as an opportunity and recently passed its own bill to implement it, which provides for corresponding simplifications. However, further approval is required before the law can enter into force.

In the new draft law, the requirement for separation, which still existed in the first version, was deleted. The separation requirement stated that the retention of Bitcoin and other digital assets must not originate from the same legal entity as other banking transactions. Accordingly, banks would have had to resort to external service providers who offer an appropriate custody service.

Read more Here

I fully read the ones concerning Germany, and they're the first to take advantage of this draft for their own benefit. At the least, at least the legal status of bitcoin is getting recognized by an organization who once eyed Malta for its openness to cryptocurrencies and other businesses catering to disruptive tech and such. I just hope that this comes into fruition and not just leave the drafts be drafts without any future readings and/or hearings until it becomes a law.

Instead of looking at this development negatively, I would be welcoming this possibility of banks to finally be able virtual assets to their customers. Things depend on the demand on this matter. of course, not all banks will be offering this service because there is no law demanding them to. However, since banks are into business, they will eventually offer something if there is a demand for it because that is the way they are making money. And when this has been previously not allowed, banks who think that there is a big demand from their base customers will certainly look into this possible market.

bitcoin isn't in conflict with their values. they can take deposits and issue loans denominated in BTC. they can even apply fractional reserve banking. banking with fiat is functionally no different than banking with BTC---not for commercial/retail banks anyway.

i'd prefer to see people being their own bank, but i suspect there is a big market for banking/brokerage customers who don't want to take custody of their own coins.

Sounds like collecting rainwater from your home roof and storing them in your community's Central Water reserve for safety reason OR collecting the rainwater from the Central Water reserve. Well, that is Ok for most people but not for some.
This is Ok as long as freedom to "Be your own bank" is not infringed.

this is not about "banking" (storing/savings) this is about letting EU financial institutions to be able to offer ETF investments and able to day trad bitcoin on behalf of its customers

in the first draft it would have allowed banks to purchase ETF assets via third parties services (thus banks only 'own' the shares) on customers behalf but the newest draft means banks could create their own ETF's and lock up coins in their own custody and then buy and sell shares to customers

its like
no draft = not being able to play poker
first draft = banks being the proxy poker player for someone else that has no clue
newest draft = banks being the 'house' able to shuffle the deck and hand out the cards

Let's not all get so happy, keep in mind there is a need for further approval before this bill is going to get passed, and there's a pretty high chance that it ends up getting blocked, the EU isn't the most crypto-friendly bunch.

I am no expert when it comes to economics or bills, but I feel like this isn't focused on banking - instead its more focused on the anti-AML side of things, and this is just going to impose a new ruleset on the banks? Will this even affect regular users?

If I know better, I would say that's a good move but the government isn't trustworthy. Today they're in bed with Bitcoin, Cryptocurrencies and Blockchain, The next day, they are on a full flexge war against Bitcoin. One thing is quite certain ~ If the government is willing to get Bitcoin to be available in banks, then there's a catch. Also Bitcoin in bank just gives government an opportunity to manipulate and exploit bitcoin.

Hardware and software wallets provide security when they are used correctly, but not everyone has the necessary knowledge to do it, and people also do mistakes by ignoring the instructions they were given. They buy hardware wallets with tampered security seals, install wallets without verifying signatures, use wallets in insecure environment and fall victim of clipboard malware and so on.

As for third parties that get hacked, I think it's much less likely for banks to get hacked than for cryptocurrency exchanges. And banks won't need to store a lot of coins in hot wallets, so they will be utilizing cold storages. And if they will be insured, there's even less risks for customers when it comes to security.

What people should really be worried when it comes to banks and crypto, is that banks could easily freeze your money if their algorithms or employees see your funds as suspicious.

Yes I think governments along with banks will only allow crypto usage if they are regulated. Without regulations they wont accept crypto, its very simple.
In my view crypto system will work in parallel with banks at least in a decade or so.