A draft law expected to be voted on by the European Parliament's economic affairs committee on Tuesday stated banks would have to set aside a significant amount of capital to cover their crypto asset holdings.

What Happened: This was part of the Basel III accord, which required banks to hold more capital to cope with market shocks without the need for taxpayer aid, Reuters reported.

The draft law included an amendment that stated banks must apply a risk weighting of 1,250% of capital to crypto asset exposures in order to cover a complete loss in their value.

This was in line with recommendations from the global Basel Committee of banking regulators in December.

The draft law also defined "shadow banking" as the vast sector of insurers, hedge funds and investment funds that made up about half the world's financial system and were typically less regulated than banks.

It required the European Commission to publish a report by June 2023, analyzing the possibility of introducing prudential limits on banks' exposures to shadow banks.

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Additionally, the draft law required remuneration policies at banks should be aligned with their transition plans to address environmental, social and governance (ESG) risk over the short, medium and long terms.

The draft law also introduced a new "fit and proper" regime for appointing bankers, with amendments stating there should be targets for a bank's management body.

These targets included "sufficiently diverse as regards age, gender, and geographical and educational background," according to a report from Jonas Fernandez, the committee member leading the negotiations on the draft law in parliament.

Why It Matters: Overall, the amendments in this draft law go further than the changes made by EU states, which reached a deal among themselves in December.

The EU states' changes generally focused on temporary carve-outs on some of the requirements to give banks more time to adapt in the face of opposition from the European Central Bank.

After Tuesday's vote, lawmakers and EU states will work out a final deal that would come into effect in 2025.

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