On Tuesday, the European Union (EU) marked a political milestone by agreeing to new bank-capital regulation that covers crypto assets. This move is in response to lawmakers’ insistence on stringent regulatory measures.
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The EU has formulated rules to prevent unsupported virtual currencies from becoming part of its established financial system.
EU Parliament Passed New Crypto Rules
The proposed legislation was announced on Twitter by the European Parliament’s Economic and Monetary Affairs committee. Moreover, the agreement emerged following an important meeting that brought together representatives from the European Parliament, the European Commission, and national governments.
Notably, the European Commission initiated the proposed regulations in 2021, paving the way for the ongoing process, which is now complete with the establishment of this new rule. Analysts opined that the new political agreement would bring sweeping changes and reforms to how banks evaluate the risk associated with corporate and home loans.
However, before these changes can be signed into law, member states in the European Union’s Council must vote. Then, there would be crucial scrutiny by the lawmakers within the region.
The process is long because it must pass through several legislative deliberation and debates. Despite its controversial sides, the proposed bill is expected to usher in a new era in financial regulations and risk assessment mechanisms.
Additionally, its impact will cause a massive transformation in the banking sector and influence how banks evaluate and mitigate potential lending risks to corporate entities and individuals. However, this effect is subject to the bill’s successful implementation.
Meanwhile, each member country is expected to weigh its potential benefits and implications based on their respective jurisdictions’ diverse interests and concerns.
Modifying Risk Analysis For Banking Assets
Commenting on the new regulations, Elisabeth Svantesson, Swedish Minister of Finance, who heads the negotiations for EU member nations, stated that the proposed rules would modify the risk analysis for banking assets like corporate loans and enhance the stability of banks within the EU bloc.
Furthermore, the Council disclosed that the agreement contains a “transitional prudential regime for virtual assets,” although specific details were not disclosed. Moreover, the Basel Committee on Banking Supervision, an international group responsible for establishing standards, is currently in the final stages of developing a comprehensive global rulebook for crypto banking.
Preliminary information suggests that the committee will adopt a strict approach by assigning a maximum risk weight of 1,250% to free-floating crypto assets. This would require banks to maintain one euro of capital for each euro worth of Bitcoin (BTC) or ETH (ETH), motivating them to invest in the market.
According to reports, EU parliamentarians are eager to accelerate the implementation of these measures. Meanwhile, the move has garnered support from EU governments, who must also air their views regarding the bill before it becomes law.
