EU banking watchdog to deepen probe of links between banks, crypto entities: FT

The European Banking Authority (EBA), the regulator that conducts stress tests on European Union banks, will take additional steps to predict how strains in non-bank financial institutions (NBFIs), including cryptocurrency-related entities, will affect the lenders, according to the Financial Times.

Concern over contagion has triggered the need to "dig deeper into the links between banks and other financial firms," José Manuel Campa, EBA chair, said in an interview with the FT. "We should be doing more and we are going to be doing more. We need to have an understanding of the whole underlying chain in NBFIs.”

According to the FT report, NBFIs hold around $219 trillion, almost half of the world's financial assets.

The EBA has already taken some action to address the role crypto may play in stressing the system. In November, it published draft rules on liquidity and capital requirements for stablecoin issuers in line with the EU's new Markets in Crypto Assets (MiCA) regulation. It has also proposed rules that would see individuals with stakes of more than 10% in a crypto company vetted for convictions or sanctions and told crypto companies to watch for customers using privacy coins or self-hosted wallets to spot potential money laundering.

The EBA conducts biennial stress tests on European lenders and assessments of the banks' balance sheet exposures to non-banks, Campa said. The latest move would be to work with the European Systemic Risk Board and Financial Stability Board to understand the impacts of a "shadow banking shock" to the wider system, the report said.