The European Central Bank (ECB) expects EU banks to introduce limits on their crypto holdings even before the Basel Committee on Banking Supervision’s (BCBS) global standards come into force in 2025.
These standards have grouped cryptocurrencies into two groups based on the specific risks they pose, providing banks guidance on how to manage their exposure to each group.
Bitcoin, for example, has been defined as an “unbacked” asset placed into group 2 of risky assets. Included in this tier, are any assets that don’t meet the BCBS’ classification conditions, which include the asset’s ability to avoid “material risks” and address money laundering concerns.
Stablecoins with “ineffective” mechanisms for maintaining their peg, for example, would also fall into this group.
As such, they “are subject to a newly prescribed conservative capital treatment with a risk weight of 1,250%” and an exposure limit below 1% of banks’ Tier 1 capital, the ECB said in a newsletter Wednesday.
As opposed to Group 2, cryptocurrencies belonging to Group 1 include tokenized versions of traditional…