European Union (EU) banks with exposure to highly volatile cryptocurrencies like Bitcoin should face higher capital requirements, according to a proposed amendment to a European financial services law.
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Fast facts
- Crypto assets like Bitcoin, which are considered risky and collectively categorized as class 2, would have the highest caution rating, limiting banks from lending beyond a certain cap, according to a European Parliament document.
- “An institution’s total exposure to class 2 crypto-asset exposures must not be higher than 1% of the institution’s tier 1 capital at all times,” the report said.
- Tier 1 capital refers to the core measure of a bank’s financial strength from a regulator’s point of view and stands for the core capital in a bank’s reserves.
- Class 1 crypto assets, such as regulated stablecoins, would have no upper ceiling and flexible capital requirements as they are considered less risky.
- Bitcoin fell 1.74% in the past 24 hours to trade at US$23,413 as of 4 p.m. in Hong Kong, while Ethereum declined by 2.63% to US$1,846, according to CoinMarketCap.
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