A significant advancement in the European Union’s regulation of digital currencies has occurred with the European Banking Authority (EBA) completing its guidelines on capital reserves for banks that hold non-backed cryptocurrencies, including Bitcoin and Ether [1]. This new structure, which is a component of the Capital Requirements Regulation (CRR III) and was implemented in July 2024, enforces noticeably stricter capital reserve requirements for financial institutions that include these assets on their financial statements.
The finalized regulatory technical benchmarks categorize unbacked cryptocurrencies under Group 2b, assigning them a high-risk weight of 1,250%. Group 2a consists of a subset of these assets that adhere to precise hedging and netting standards established by the Bank for International Settlements. Concurrently, asset-referenced tokens within Group 1b, linked to conventional financial instruments, will be subject to a 250% risk weighting. These regulations are intended to standardize capital requirements across all EU member nations and to guarantee consistent risk management strategies [1].
The EBA’s directives also provide precise technical instructions for evaluating credit, market, and counterparty risks linked to crypto investments. Notably, the established framework calls for a firm separation of crypto assets, implying that Bitcoin and Ether cannot be utilized to offset one another for the purpose of meeting capital requirements [1]. The regulations will now be presented to the European Commission, which has a three-month window to either approve, modify, or reject the proposal. Upon approval, the regulation will be formally published in the EU Official Journal and take effect within 20 days unless the European Parliament or Council raises objections [1].
These novel regulations are anticipated to significantly influence European banks that already hold crypto assets. To illustrate, Intesa Sanpaolo, having invested one million euros in Bitcoin in January, would now be required to allocate 12.5 million euros in capital to cover that particular position [1]. Conversely, fintech firms such as Revolut, whose crypto operations are conducted off-balance-sheet, are not likely to experience immediate regulatory impact under this new framework [1].
The EBA’s methodology differs from the regulatory approaches observed in other regions, where authorities are increasingly integrating cryptocurrencies into established financial systems. In the United States, the FDIC recently declared that banks may participate in crypto-related activities without needing prior authorization, whereas Switzerland has modernized its legal structure to authorize banks to hold tokenized securities and provide guarantees for stablecoins [1]. Reports also indicate that the impending U.S. administration is contemplating an executive order to investigate allegations of “debanking” against crypto enterprises, implying a possible change in the manner in which U.S. regulators view this sector [1].
As the global financial environment progresses, the EBA’s verdict may restrict the involvement of EU banks in the expanding digital asset market, especially in sectors such as decentralized finance and tokenization. While these rules are designed to improve risk management, they also demonstrate a more conservative regulatory posture in contrast to other countries where crypto innovation is being actively encouraged [1].
Source: [1] EU banking regulator finalizes capital rules for banks holding Bitcoin, Ether (https://coinmarketcap.com/community/articles/6894a59dab27187a281f7b13/)