EBA Crypto Capital Charge: A Massive 1,250% Burden for Banks’ Unbacked Crypto Holdings

Key Points

1. The EBA's new rules under CRR III require EU banks to assign a 1,250% risk weight to unbacked crypto assets such as Bitcoin and Ether.

2. The high capital charge is intended to protect banks from financial shocks due to the volatility and speculative nature of unbacked crypto assets.

3. The rules will significantly increase the cost for banks to hold Bitcoin and Ether, likely reducing direct holdings and shifting focus to indirect crypto-related services.

4. The finalized draft will be reviewed by the European Commission and, once approved, will become legally binding under the Capital Requirements Regulation framework.

5. The regulation targets 'unbacked crypto assets,' primarily Bitcoin and Ether, which are not backed by traditional assets or liabilities.