Allgemein

EU Proposal Seeks to Lower Risk Weight for Stablecoins: Banks Safer?

• The European Commission has proposed to reduce the risk weight associated with stablecoins and tokenized assets from 1,250% to 250%, in order to facilitate commercial lenders’ inclusion of these assets.
• The proposal is a response to lawmakers seeking to prevent crypto turmoil from impacting the commercial banking system.
• The Commission aims for a balanced regulatory approach, while still allowing for Bitcoin (BTC) and Ethereum (ETH) carry the maximum risk weight of 1,250%.

Efforts by EU to Lower Risk Weight on Stablecoins

The European Commission has put forth proposals that aim to ease restrictions on crypto holdings as part of broader banking reforms. Lawmakers have sought ways to prevent potential crypto turmoil from impacting the commercial banking system. To achieve this, the Commission is proposing risk weight adjustments for stablecoins and tokenized assets in order for them to be included in commercial lender’s portfolios.

Risk Weight Reduction For Stablecoins

The proposed reduction would lower the risk weight on digital assets from 1,250% down to 250%, which only applies if the stablecoin is tied to non-fiat assets like gold. Tokenized assets and stablecoins backed by fiat currencies would also be treated similarly unless additional credit or market risks exist. This aligns with MiCA regulations which come into effect July 2024 that regulates stablecoin issuers and mandates appropriate reserves.

EU Aiming for Balanced Regulatory Approach

The leaked document warns of increased risks if appropriate regulations are not established regarding exposure to crypto-assets and their transmission channels between crypto-assets and financial markets. Supervisors will need to ensure banks properly manage any associated risks such as cybersecurity, money laundering, and valuation issues. Bitcoin (BTC) and Ethereum (ETH) would still carry the maximum risk weight of 1,250%. This cautious approach has raised concerns among traditional finance practitioners due its stringent nature.

Finalization After 2023 Once Global Standards Are Established

The Commission plans on finalizing a more comprehensive strategy after 2023 once global standards have been established by the Basel Committee on Banking Supervision. In order for all parties involved in blockchain technology be fully informed about laws and regulations governing it, it is important that efforts are taken towards creating clear guidelines so as not create confusion amongst users or limit innovation within this field.

Conclusion

Despite certain reservations about cryptocurrency held by financial institutions, steps are being taken towards reducing risks associated with digital asset holdings so that innovative projects can move forward without risking volatility or other complications related traditional finance systems