Based on the recent development, it would become a necessity for banks to set aside a considerable amount to cover holdings of crypto assets. This would be made possible under a new draft that would be voted on by numerous lawmakers anytime soon. The European Parliament’s Economic Affairs Committee would vote on the draft which would implement the remaining elements of Basel III. This can simply be defined as a global accord that makes it mandatory for banks to hold with greater capital. The need for greater capital arises in an effort to deal with market shocks.
However, one of the many amendments mentions that banks must resort to applying a staggering risk-weighting percentage. Almost 1250% of the capital would be applied to multiple crypto asset exposures. Furthermore, this implementation would be enough to greatly cover a complete loss in value. This can be classified as being in line with the recommendations from the global Basel Committee banking regulators.
Moving on, these new amendments also introduce the concept of shadow banking. Shadow banking can simply be classified as all those bank-like activities that take place outside the banking sector. Similarly, the amendments also talk about the great sector of insurers, hedges, as well as investment funds. These are responsible for making up approximately half of the world’s banking system. Furthermore, unlike traditional banking systems, these are considerably less regulated.
Can This Be Classified as a way to regulate crypto?
It is a known fact that a number of organizations have stepped in to regulate crypto. Considering the turmoil of the crypto market the previous year, investors had to face great difficulties. Not only did they lose their confidence, but they even suffered great losses as well.
When talking about an issue like that, most organizations believe that regulating crypto is of utmost necessity. These organizations believe that regulating crypto would make trading safe for everyone. However, it is widely believed that the true essence of crypto lies in it being decentralized. Not only that, as a result of keeping it decentralized, there would be no need to trust anyone else with the assets, nor would anyone know what another has. This inevitably develops a sense of privacy as well.