EU (European Union) Banks have been told by the ECB (European Central bank) to apply caps on their Bitcoin (BTC) holdings before global norms take effect. The global norms will be set by the Basel Committee on Banking Supervision (BCBS).
Cryptocurrencies have not yet made a big impact on the banks of the EU. However, the ECB advised them to recognize the investments as risky and immediately limit holdings. In a newsletter from Wednesday, the ECB said if the banks wish to engage with the cryptocurrency markets, they should “comply with the standard.”
The BCBS suggests giving unbacked digital assets like Bitcoin (BTC) a maximum risk weight of 1,250%. Banks must issue as much capital as they hold in cryptocurrencies. Additionally, they would be prohibited from owning cryptocurrency in quantities greater than 1% of their Tier 1 core capital. Moreover, according to an ECB study released on Wednesday, distributed ledger technology is little implemented across banks.
What are the BCBS rules for Bitcoin and other cryptocurrencies?
The BCBS’s global cryptocurrency banking rules are expected to take effect from Jan. 1st, 2025. The BCBS standards offer a standardized worldwide regulatory and supervisory approach to banks’ exposures to crypto assets, according to the newsletter. Additionally, it strives to strike a balance between competent bank risk management, financial stability, and responsible private-sector innovation.
Given the disasters that have occurred in the cryptocurrency space over the last year, it is not surprising that regulators want to step in. Over in the U.S., several Wall Street firms have expressed interest to enter the field. Given that regulations are likely to step in, the banks want to position themselves in the best way possible. The lack of proper regulation has often kept financial institutions from dipping their toes in the cryptocurrency industry. However, with the advent of global regulations, we might see a surge in banks getting into digital assets.