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US Regulators Explore How Banks Could Hold Crypto Assets – FDIC Chairman

By on October 26, 2021 0

LAS VEGAS, Oct.26 (Reuters) – A major U.S. banking regulator has said U.S. officials are seeking to provide a clearer path for banks and their clients looking to hold cryptocurrencies, in order to maintain control over the rapidly developing asset.

Jelena McWilliams, who chairs the Federal Deposit Insurance Corporation, told Reuters on Monday in an interview that a team of U.S. banking regulators were trying to provide a roadmap for banks to engage in crypto assets.

This could include clearer rules on the custody of cryptocurrencies to facilitate transactions with clients, use them as collateral for loans, or even keep them on their balance sheets as more traditional assets.

“I think we need to empower banks in this space, while managing and mitigating risk appropriately,” she said in an interview on the sidelines of a fintech conference.

“If we don’t bring this activity inside the banks, it will grow outside the banks.… Federal regulators won’t be able to regulate it.”

McWilliams’ comments provide the most comprehensive picture to date of what regulators are exploring as part of a cryptocurrency “sprint” team first announced in May. The team’s goal was to coordinate cryptocurrency policy among the three major U.S. banking regulators – FDIC, Federal Reserve, and Office of the Comptroller of the Currency.

The rapid emergence of cryptocurrency has led to a murky regulatory picture in the United States. Under the previous leadership, the OCC took an aggressive approach to bringing cryptocurrency to banks, including blessing bank custody services for cryptocurrency, while other agencies were slower to act.

These decisions are currently under review, according to Acting Controller Michael Hsu.

Some banks have already started to embark on these areas without regulatory clarity. Earlier this month, US Bancorp (USB.N) announced the launch of a cryptocurrency custody service for institutional investment managers.

But comments from McWilliams, a Republican holdover from the Trump administration, suggest that regulators are still looking for a way to integrate cryptocurrency into mainstream banking supervision.

“My goal in this interagency group is basically to provide banks with a way to act as a custodian of these assets, to use crypto assets, digital assets as a form of collateral,” McWilliams said at a conference panel.

“At some point we’re going to ask ourselves how and under what circumstances banks can keep them on their balance sheets.”

McWilliams recognized the challenges.

The simpler problem would be getting regulators to establish a roadmap for the safekeeping of crypto assets, she said. However, it is difficult to understand how to allow the volatile asset as collateral and include it on bank balance sheets, she added.

“The problem here is… the valuation of these assets and the fluctuation in their value which can be almost daily,” McWilliams said. “You have to decide what kind of capital and cash handling to allocate to these balance sheet holdings.”

Echo Wang report; Writing by Pete Schroeder; Editing by Megan Davies and Richard Chang

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