EU Finalizes Crypto Rule for Banks

The European Banking Authority (EBA) has finalized a stringent set of rules requiring banks across the European Union to hold substantially higher capital reserves against unbacked cryptocurrencies such as Bitcoin and Ether.

The new framework aims to harmonize capital requirements across EU member states and applies to banks holding crypto assets on their balance sheets.

Under the rules, banks must assign a risk weight of 1,250% to Group 2b assets, which include unbacked tokens like Bitcoin and Ether. This means a €1 million exposure to such assets would require €12.5 million in capital reserves.

Group 2a assets, which are categorized as unbacked tokens meeting certain hedging criteria, are subject to the same treatment. Whereas asset-referenced tokens classified as Group 1b carry a lower risk weight of 250%.

These technical standards are part of the Capital Requirements Regulation III (CRR III), which came into effect in July 2024, and introduces detailed methodologies for assessing credit, market, and counterparty risks associated with crypto holdings.

Notably, the framework enforces strict separation of crypto assets, preventing banks from offsetting exposures between different tokens such as Bitcoin and Ether.

The European Commission now has three months to endorse, amend or return the draft rules. Following approval, the regulations will undergo scrutiny by the European Parliament and Council before coming into force.

The EBA’s conservative stance contrasts with more permissive approaches in the US and Switzerland, where regulators have eased restrictions on banks’ crypto activities. Critics have warned that the EU’s high capital requirements could limit traditional banks’ participation in the growing digital asset market.