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Europe's economy could fall further behind its global rivals unless the European Union urgently overhauls banking regulations that are choking off lending, the European Banking Federation (EBF) has warned.

In a letter to European Commission President Ursula von der Leyen and other top officials, the influential industry group described the current situation as "neither satisfactory, nor sustainable."

The €1.5 Trillion Cost of Regulation

Slawomir Krupa, President of the EBF and CEO of French bank Societe Generale, argued in the January 19 letter that the regulatory landscape has become "increasingly complex and fragmented."

The core issue, Krupa stated, is that "Banks, already subject to high capital requirements, operate under the spectre of further increases."

To back this claim, the EBF presented data from 2021-2024 showing the concrete impact on 15 major European banks:

• Over €100 billion ($119 billion) in extra capital was required due to discretionary supervisory actions.

• 90% of net capital generated by these banks was absorbed by these measures.

• This resulted in a lost lending capacity of €1.5 trillion.

Brussels Responds: A Balancing Act

Europe's sluggish economic growth has long been a point of concern for policymakers, and attempts to create a truly unified banking market have stalled.

A spokesperson for the European Commission acknowledged that simplifying rules is a "central priority" and pointed to existing proposals aimed at reducing complexity. However, the official noted that regulatory simplification is a shared responsibility among the Commission, Europe's parliament, national governments, and supervisors.

The Commission is currently preparing a report on the competitiveness of the region's banking sector, which "will help inform our assessment of where targeted measures could most effectively support banks' ability to compete and finance the European economy," the spokesperson added.

The European Central Bank (ECB) has also taken a cautious stance. In December, it proposed measures to simplify bank regulation but did not ease the overall financial burden. ECB Vice President Luis de Guindos stated this month that current capital demands support bank resilience and are not holding back lending.

This view is echoed privately by some supervisors, who argue that lowering capital requirements would more likely lead to higher shareholder payouts than increased lending to the economy. Adding to this complex picture, European banks are currently enjoying a period of record profits, with stock prices hitting their highest levels since the 2008 financial crisis.

Global Rivals Loosen Rules

The EBF's warning comes as other major financial centers move in the opposite direction. In the United States, former President Donald Trump has been pushing regulators to cut red tape for Wall Street, while UK regulators are also easing certain rules.

Krupa warned that these reforms abroad highlight a strategic risk for Europe. "Europe is risking further competitive disadvantage in terms of a level playing field that could be irreversible for our economy," he wrote.

To counter this, the EBF urged the EU to take several steps to simplify its regulatory framework, including:

• Eliminating the duplication of capital requirements.

• Removing the systemic risk buffer.

• Aligning rules for banks' trading divisions with those in the U.S.

($1 = 0.8413 euros)

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South Korea's central bank governor has raised concerns that stablecoins pegged to the Korean won could undermine the nation's ability to manage capital flows, injecting a note of caution into the country's debate on digital asset regulation.

Speaking at the Asian Financial Forum in Hong Kong, Bank of Korea Governor Lee Chang-yong acknowledged that authorities are developing a new registration framework that could permit domestic institutions to issue virtual assets. However, he stressed that stablecoins remain a contentious issue due to their potential to disrupt foreign exchange stability.

How Stablecoins Could Bypass FX Management

Governor Lee outlined a specific risk scenario where won-pegged stablecoins, likely used for cross-border transactions, could be combined with U.S. dollar stablecoins. He warned this combination could create a pathway for users to bypass capital flow management measures, particularly during periods of market volatility.

This official perspective from the central bank adds a critical voice to an ongoing legislative standoff. South Korean policymakers are attempting to formalize rules for digital asset issuance while ensuring they do not weaken the country's existing financial oversight and foreign exchange controls. While the government has shown a willingness to embrace regulated crypto activities, officials remain wary of any mechanism that could compromise their regulatory authority.

Legislative Gridlock Over Stablecoin Rules

Disagreements over stablecoin regulation have reportedly stalled South Korea's proposed Digital Asset Basic Act, which represents the second phase of the country's crypto-asset rules.

According to a report from Chosun Ilbo, the bill's submission to the National Assembly has been postponed due to persistent disagreements on several key points:

• Who can issue stablecoins: This is the central point of conflict.

• Ownership caps for exchanges: Rules governing how much of an exchange one entity can own.

• Regulatory oversight: Determining which body will have final authority.

Banks vs. Non-Banks: The Core Disagreement

The debate over issuance is particularly sharp. The Bank of Korea has argued that only banks should be permitted to issue won-pegged stablecoins to contain systemic and foreign exchange risks. In contrast, crypto industry groups are advocating for a broader authorization system that would allow non-bank firms to participate under clear regulatory supervision.

Financial authorities have reportedly considered a compromise centered on bank-led groups, but a breakthrough has not yet been achieved. This legislative deadlock has also delayed discussions on other crypto-related initiatives, such as allowing listed companies to trade digital assets and approving spot crypto exchange-traded funds (ETFs) for the domestic market.

The central bank's warnings are set against a backdrop of increasing pressure on the Korean won, with authorities reportedly concerned about potential large-scale dollar outflows linked to U.S. trade tensions and a weakening currency.

The Federal Reserve is signaling it will hold interest rates steady in January, a decision that is creating a tense backdrop for Bitcoin (BTC), the U.S. Dollar, and global currency markets. With prediction markets pricing in a 99% probability of no change, investors are now focused on the ripple effects of the Fed's anticipated inaction.

Why a Rate Hold is Almost Certain

The consensus for a rate hold is built on a foundation of stable macroeconomic data. With the labor market stabilized and economic growth projections looking moderate, the Federal Reserve, led by Chair Jerome Powell, has little immediate pressure to adjust its policy.

Economists like Michael Feroli of J.P. Morgan have pointed to these stabilized unemployment figures as a key reason for the Fed to maintain its current stance. This cautious approach allows the central bank to continue monitoring economic performance without introducing new variables into the market.

Ripple Effects in Crypto and Forex Markets

While the Fed's policy may be stable, the implications for financial markets are dynamic. Institutional investors are watching closely as the decision impacts everything from cryptocurrency valuations to international monetary strategy.

Bitcoin Volatility and the Strong Dollar

A steady Fed policy is expected to sustain the strength of the U.S. Dollar. For the cryptocurrency market, particularly Bitcoin, this environment could fuel continued volatility. The interplay between a strong dollar and digital asset prices remains a critical focal point for traders.

The Japanese Yen Intervention Wildcard

Adding another layer of complexity is ongoing speculation about potential intervention in the Japanese Yen. Any significant moves by Japan to manage its currency could have a cascading effect on global currency dynamics, further influencing the USD and, by extension, assets like BTC.

The Fed's Strategy of Patience

The decision to hold rates is not merely a passive one; it is a strategic choice influenced by economic indicators, historical patterns, and political pressures. By maintaining the current policy, the Fed preserves its flexibility to act later if economic conditions shift.

As Eric Freedman, Chief Investment Officer at Northern Trust Wealth Management, noted, "The Fed wants to keep their options very, very open." This approach provides short-term stability while allowing policymakers to adapt to future changes in employment, inflation, and global market conditions. For now, investors remain on alert, watching how these macroeconomic forces play out.

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Source: CNBC

Venezuela is forecasting a fresh wave of oil investments totaling approximately $1.4 billion this year, a notable increase from the $900 million received last year, according to interim president Delcy Rodriguez.

This anticipated capital influx is expected to stem from new production-sharing agreements. The Venezuelan government is currently in discussions with oil companies to overhaul the country's oil legislation, paving the way for these revised contracts.

US Policy Shift Opens Door for Limited Operations

The investment outlook is supported by recent moves from the U.S. government, which issued licenses in January permitting limited oil-related activities in Venezuela.

Under these new provisions, oilfield service companies can supply equipment and provide technical support for production and exports. Crucially, they are also allowed to receive payment through approved financial channels. While these measures do not constitute a full lifting of U.S. sanctions, they create a framework for specific projects to proceed under clearly defined conditions.

Oil Majors Split on Venezuelan Opportunity

Washington's policy adjustments aim to gradually reopen Venezuela's oil industry to external players, but the response from major oil companies has been mixed.

Exxon, for instance, has expressed significant caution. During discussions with the Trump administration about a potential return of U.S. majors, CEO Darren Woods described Venezuela as "uninvestable" at the moment, a comment that reportedly drew the president's ire.

In contrast, Chevron has signaled a clear interest in expanding its existing operations within the country, indicating a more optimistic view of the potential returns.

Long-Term Production Forecasts Signal Potential

Looking ahead, analytics firm Enverus projects that Venezuela's oil production could rise to 1.5 million barrels per day by 2035, representing a 50% increase from current output levels.

In a more optimistic, best-case scenario, Enverus suggests production could swell to as much as 3 million barrels per day by 2035. However, achieving this higher target would be heavily dependent on global oil demand and supply dynamics.

Economic Hurdles to Tapping Heavy Crude Reserves

Despite the positive forecasts, significant doubts remain about the economic viability of extracting Venezuela's vast oil reserves.

Energy industry analyst Robert Rapier recently noted that much of the country's oil is heavy crude located in the Orinoco Belt. Extracting this type of crude is a high-cost endeavor that would require substantial investment in upgrading existing infrastructure, further adding to the overall expense and casting doubt on the profitability of these massive reserves.