EBA proposed a common capital framework for EU banks’ crypto exposures

The European Banking Authority on January 8, 2025 opened consultation on detailed standards for calculating the capital EU banks must hold against crypto-asset exposures, moving a transitional rule in the bloc’s Capital Requirements Regulation toward a common operating methodology.

The draft Regulatory Technical Standards addressed credit risk, counterparty credit risk, market risk and credit-valuation-adjustment risk. They also proposed rules for measuring exposures, combining long and short positions, recognizing qualifying hedges and applying prudent-valuation requirements to crypto assets carried at fair value.

The development mattered because legislation can set a capital requirement without resolving every calculation needed by a bank’s trading, treasury and risk systems. Different interpretations of netting, derivatives or hedges could produce materially different capital charges for economically similar positions. The EBA’s proposal sought to reduce that inconsistency across EU institutions.

From statutory categories to bank calculations

Article 501d of the Capital Requirements Regulation, added through Regulation (EU) 2024/1623, established a transitional prudential framework while the European Union developed a permanent treatment. Article 501d had applied since July 9, 2024, even though most other provisions of the amended regulation became applicable on January 1, 2025.

The statutory framework distinguished among tokenized traditional assets, qualifying asset-referenced tokens and other crypto assets. Exposures to asset-referenced tokens issued in compliance with the Markets in Crypto-Assets Regulation and referencing traditional assets generally received a 250% risk weight. Other crypto assets—including unbacked assets such as bitcoin—were generally assigned a 1,250% risk weight. The aggregate exposure subject to that latter treatment was also constrained by a limit equal to 1% of an institution’s Tier 1 capital.

A risk weight is an input to a regulatory capital calculation, not a forecast of an asset’s likely loss or price. The January 8 proposal therefore did not declare that bitcoin would lose a specified percentage, and it did not prohibit EU banks from every crypto-related activity. It prescribed a deliberately conservative method for exposures falling within the relevant categories.

Netting and hedging became central questions

The draft addressed how banks should aggregate long and short positions and when a hedge could reduce a measured exposure. Those details were especially significant for derivatives and securities-financing transactions, where gross positions may be much larger than the institution’s intended directional risk.

The EBA proposed conditions for recognizing hedges involving certain crypto assets rather than assuming every offsetting position eliminated risk. It also supplied formulas for counterparty and market-risk calculations and proposed bringing fair-valued crypto assets within MiCA’s scope into the Capital Requirements Regulation’s prudent-valuation framework.

That approach reflected several risks that can remain even when price direction appears hedged: counterparties can default, trading venues can fragment, instruments can track imperfectly, and positions can become difficult to close. The consultation nevertheless left stakeholders room to challenge whether particular calculations were proportionate or whether they counted the same risk more than once.

A proposal, not a completed rulebook

The January 8, 2025 publication began a consultation rather than imposing final technical standards. Comments were due on April 8, 2025, and the EBA scheduled a public hearing for March 4, 2025. Adoption would require additional institutional steps after the EBA considered responses.

For banks, exchanges and custodians evaluating institutional crypto services, the immediate significance was therefore preparatory. The proposal showed how supervisors expected crypto positions to enter familiar bank-capital disciplines while exposing unresolved questions about valuation, netting and hedge recognition. It did not authorize a product, certify any token as safe or replace MiCA’s separate rules for issuers and crypto-asset service providers.