EU seeks to limit banks’ crypto exposure

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. 

See related article: Bitcoin miner Stronghold to return mining rigs to cut debt; shares plunge as losses widen

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. 

See related article: Investors yank out US$29 mln this month from Bitcoin: CoinShares