The European Banking Authority has finalized draft rules requiring EU-based banks to hold significantly more capital against unbacked cryptocurrencies like Bitcoin and Ether, aiming to harmonize capital requirements across the EU.
The EBA’s final draft of regulatory technical standards aims to “address implementation aspects and will ensure harmonisation of the capital requirements on crypto-asset exposures by institutions across the EU.” This framework specifically targets EU banks that hold crypto assets directly on their balance sheets.
Following the EBA’s submission, the European Commission will have up to three months to review the draft. The Commission can choose to endorse it as is, amend it, or send it back for redrafting. If endorsed, the bill will then become a delegated regulation and proceed to the European Parliament and the Council. Both bodies will have a three-month window to object, which can be extended to six months. Should neither the European Parliament nor the Council object, the draft rules will become effective 20 days after their publication in the Official Journal of the EU.
Under the proposed framework, digital assets categorized in Group 2 (a and b) will be subject to a substantial 1,250% risk weight. Group 2b encompasses “other” crypto assets, including unbacked cryptocurrencies like Bitcoin. Group 2a refers to a subcategory of these assets that meet the Bank for International Settlements’ hedging and netting criteria. In contrast, Group 1b assets, which are asset-referenced tokens tied to traditional financial instruments, will face a 250% risk weight. These risk weights were initially introduced as part of the Capital Requirements Regulation (CRR III) and have been effective since July 2024.
The latest EBA draft further specifies the technical elements required for calculating and aggregating crypto exposures, incorporating considerations for credit risk, market risk, and counterparty risk modeling. A critical aspect of these new rules is the strict separation between different crypto assets, meaning that assets like Bitcoin and Ether cannot be offset against each other for capital calculation purposes.
These stringent rules are expected to have a direct impact on European banks that currently hold crypto assets. For instance, the Italian bank Intesa Sanpaolo, which acquired 1 million euros worth of Bitcoin in January, would be required to hold 12.5 million euros in capital against that position under the new draft framework. However, fintech firms like Revolut are unlikely to be affected, as their crypto services are managed off-balance-sheet by their non-banking arm, Revolut Digital Assets Europe Ltd.
The EBA’s approach stands in stark contrast to the evolving regulatory landscape in other major global jurisdictions, which are increasingly moving towards integrating crypto assets within existing financial frameworks. For example, in late March, the US Federal Deposit Insurance Corporation (FDIC) issued a letter clarifying that institutions under its oversight, including banks, can now engage in crypto-related activities without seeking prior approval.
Similarly, Switzerland amended its DLT Act in April, thereby enabling banks to custody tokenized securities and provide guarantees for stablecoin issuers under a clear legal framework. In the United States, recent reports indicate that former President Donald Trump is planning an executive order to investigate claims of debanking within the cryptocurrency sector and among conservatives. The US banking sector has already shown signs of adapting, with JPMorgan Chase reportedly exploring crypto-backed loans, signaling a potential shift in how US banks view digital assets. The new EU capital rules could potentially limit the participation of European banks in the burgeoning digital asset market, particularly as decentralized finance (DeFi) and tokenization continue to expand into mainstream financial services.
