The European Parliament will today vote on a draft law to oblige banks to hold enough reserves in order to cover all potential losses from their crypto clients.
In a move that could potentially cut the crypto sector adrift from banking and financing, the EU will vote on Tuesday on a draft law that would require banks to hold reserves that total more than 100% of any loss from crypto companies.
According to Reuters, one of the amendments up for the vote would require banks to set a risk-weighting of 1,250% to all capital that has exposure to crypto assets, which would mean that banks would be able to cover 100% of any potential losses.
The new law has been drafted in order to include the last elements of Basel III, which is a global agreement that requires banks to hold more capital so that they can deal with market shocks without having to put any reliance on taxpayers.
Shadow banking
The Reuters article also looks at how the amendments apply to the world’s ‘shadow banking’ sector. This is a term used for banking that typically goes on in a less regulated way, and applies to the “insurers, hedge funds, and investment funds” that are said to make up around half the world’s banking sector.
An amendment would ask for a report from the European Commission which would look into the possibility of requiring banks to have a limited exposure to shadow banking.
Opinion
It might be argued that all laws and pronouncements coming out of Europe currently are designed to cut the arms and legs off of the crypto industry and severely curtail its ability to operate.
It could certainly be the case that some banks might have lost money by having exposure to this or that crypto company, but it could be argued that crypto has not had proper regulation for all the years of its existence, allowing some bad actors to operate in the space.
Attempting to cut the ground from under crypto projects in order to punish and suppress the industry isn’t the best idea. The banking industry is in dire straits of its own making, and holding crypto up as a scapegoat isn’t going to save it.
Crypto is a tiny asset class of around $1 trillion in value. The traditional finance industry holds hundreds of trillions in value, yet there aren’t more than whispers out of Europe of the potential catastrophe of a wholescale financial collapse.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
