On Tuesday, the European Union (EU) came to a conclusion regarding the new bank-capital legislation including crypto assets. The rules came after the lawmakers sought “prohibitive” rules to keep unbacked cryptocurrencies out of the traditional financial system.
In an official tweet, the European Parliament’s Economic and Monetary Affairs committee, announced the news. Sources reveal that the news came after the scheduled meeting among the representatives of the European Parliament, national governments and the European Commission, which had first proposed the new rules back in 2021.
After the political deal among lawmakers regarding the legislation, it must now be voted on by member states in the EU’s Council and by lawmakers to become legislation, a process that can in practice take many months. The legislation seeks to introduce sweeping and controversial changes to how banks assess the risk of corporate and home loans.
In an official statement, Swedish Finance Minister Elisabeth Svantesson, who chaired the talks on behalf of EU member states, said that the new rules also adjust the risk weighting for banking assets such as corporate loans, “boost the strength and resilience of banks operating in the Union.”
The Council statement also confirmed the political deal includes a “transitional prudential regime for crypto assets,” without providing further details. Currently, the international standard-setters at the Basel Committee on Banking Supervision are finalizing what a global crypto banking rulebook would look like. However, details already out suggest they’ll take a tough line assigning the maximum possible 1,250% risk weight to free-floating cryptocurrencies.
Reportedly, that would mean banks have to issue a Euro of capital for each Euro of Bitcoin or Ethereum they hold, giving them little incentive to buy into the market. The EU lawmakers appear enthusiastic to see those measures take effect sooner rather than later.
Under a compromise privately proposed by the European Commission during the talks, the lawmakers have decided on softening their otherwise vowed strict stance to regulate stablecoins. Notably, the larger European continent have also appeared to voice the same stance who must agree before the bill becomes law.
The backing of crypto assets have been on the table for discussion among regulators across the globe. Several countries are utterly focused on the regulation of stablecoins considering the relatability on the asset they’re backed with. In particular, Japan and United States have been engaging with the topic.
Simultaneously, Israeli authorities have also passed strict requirements for stablecoin reserves. Recently, the Bank of Israel published guidelines for policing stablecoin activities in the nation, outlining the central bank’s suggestions for managing digital currency correlated to the value of other assets like the US dollar.
As time processes, the relevancy of stablecoins will be further highlighted considering the growing market of cryptocurrencies. This would require the authorities to take appropriate steps in the direction.