EBA Drafts Rules Requiring EU Banks to Hold Up to 12.5x Capital for Crypto

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Indicating a cautious approach to EU regulation for the crypto asset landscape, the European Banking Authority (EBA) has published draft Regulatory Technical Standards regarding risk exposure for crypto assets. 

The standards stipulate that EU institutions need to allocate substantially higher capital reserves when holding unbacked crypto assets such as Bitcoin and Ethereum. Asset-referenced tokens also face high capital reserve requirements. 

The EBA said the standards “address implementation aspects and will ensure harmonisation of the capital requirements on crypto-asset exposures by institutions across the EU.” The draft aligns with international Basel Committee standards for banking regulation and reflects the EU’s Markets in Crypto-Assets (MiCA) framework.

Under the draft regulations, unbacked crypto assets (categorized as Group 2b assets) carry a 1,250% risk weight for EU banks, meaning banks would need to hold 12.5 times the value of their crypto exposure in capital. Asset-referenced tokens (categorized as Group 1b assets) tied to traditional financial instruments would carry a lower 250% risk weight, meaning they would need to hold 2.5 times the value of their crypto exposure in capital.

This tiered approach to crypto exposure risk weight is consistent with Capital Requirements Regulation (CRR 3), effective since July 2024. 

The draft standards next go to the European Commission, which will have three months to endorse, amend, or return them. Following Commission endorsement, the draft would proceed to the European Parliament and Council, with an approval window of three to six months. 

The draft will then come into effect 20 days after publication in the Official Journal of the European Union, as long as neither the Parliament nor Council objects.