The European Union is mulling rules to limit the exposure of banks to financial risk amid concern crypto is a threat to the economy.
The European Systemic Risk Board (ESRB) has set out priorities for developing a macroprudential framework for the banking sector. In a report published today the regulator stressed the threat posed by new financial innovations such as crypto assets and set out the case for extending controls on the exposure of banks and non-banks.
“The entry of new institutions and the use of new financial products, some of which have quickly gained popularity (e.g. crypto assets, stablecoins, etc.), has the potential to pose risks to financial stability,” the ESRB said in a concept note published today.
The ESRB, which was set up in 2010 after the financial crisis and is chaired by European Central Bank President Christine Lagarde, manages the EU’s approach to systemic risk.
In today’s statement the board agreed on the “quick adoption and implementation” of an EU framework on crypto assets, dubbed MiCA, which aims to addresses “financial stability risks that could arise from a wide use of crypto assets and distributed ledger technology-based solutions in financial markets.”
The comments come as the ESRB prepares a response to the European Commission’s recent call out for advice on macroprudential policy in Europe. The call out identified climate change, cyber security, crypto assets and the entry of big tech firms into financial services as potential risks to the European economy.
The ESRB noted that its response to the consultation is due to be published in the coming weeks.
Regulators worldwide are mulling frameworks to mitigate the risks posed by crypto assets to the incumbent financial system. The Basel Committee on Banking Supervision, an international standard setter for banking, came under fire last year for proposing that institutions set aside enough capital to cover any losses on any bitcoin holdings in full, effectively removing incentives to enter the market.