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European banks should place the maximum possible risk weighting on crypto assets within the framework of a draft law published on Friday by the European Parliament.
The rules could determine the way in which the traditional financial sector uses digital assets. Under previously reported by CoinDesk, banks would have to disclose their direct and indirect exposure to crypto, while the European Commission prepares more fine-grained rules for the sector.
“The Union supervisory framework should take full account of the potentially growing participation of [financial] institutions in activities related to cryptoassets, to adequately mitigate the risks of these instruments to the financial stability of the institutions", said an explanatory text from Parliament's Committee on Economic and Monetary Affairs. "This is all the more urgent in light of recent unfavourable developments in the crypto-asset markets."
The proposed 1,250% risk weight gives banks little incentive to hold cryptographies, like – unlike other assets like mortgages – banks should hold capital to equal the amount of cryptography they own.
The draft law asks the European Commission to propose further legislation by June to implement international capital standards set by the Basel Committee on Banking Supervision. The committee has proposed to impose a hard limit on the assets of the unpackaged crypto banks such as Bitcoin (btc), something that doesn't seem to be in the EU bill.
Before the law is passed, EU member governments meeting as a council and the parliament have to agree on the proposals.
