Federal Deposit Insurance Corporation (FDIC) Chair Jelena McWilliams, one of the country’s top financial regulators, believes it’s time to allow banks to hold cryptocurrency, such as Bitcoin, for themselves and their clients.
“I think that we need to allow banks in this space, while appropriately managing and mitigating risk,” she said in an interview with Reuters at the Money20/20 conference in Las Vegas.
McWilliams’ comments come as an interagency team comprised of staff at the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) look to wrap up their work on coordinating cryptocurrency policies for U.S. banks.
“My goal in this interagency group is to basically provide a path for banks to be able to act as a custodian of these assets, use crypto assets, digital assets as some form of collateral,” McWilliams said at the event. She indicated that the group will look at rules for holding crypto on their balance sheets, something public companies such as Tesla and Microstrategy are already doing.
If this feels like déjà vu, it kind of is. Under Trump-era appointee Brian Brooks, formerly Coinbase chief legal officer, the OCC established rules in June 2020 allowing federal banks and savings associations to take custody of crypto assets on behalf of clients.
“From safe-deposit boxes to virtual vaults, we must ensure banks can meet the financial services needs of their customers today,” Brooks said upon the release of a letter interpreting the agency’s rules. “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.”
But those rules were put on hold by the current acting comptroller, Michael Hsu, who took over in April.
“My broader concern is that these initiatives were not done in full coordination with all stakeholders,” Hsu wrote to the House Committee on Financial Services in May as he signalled for a review of policies. “Nor do they appear to have been part of a broader strategy related to the regulatory perimeter.”
McWilliams’ comments today come on the heels of a Politico report last week that OCC staff, after former President Trump’s defeat at the polls, “quietly determined” that banks could trade crypto for their clients. The move was endorsed by the agency’s chief counsel’s office, according to Politico. And that decision led to Paxos, which helps facilitate PayPal’s crypto offerings, receiving a provisional banking charter in April.
Other, more traditional banks aren’t necessarily waiting for permission. U.S. Bancorp, the fifth-largest bank in the country by holdings, said this month that it was preparing a cryptocurrency custody service for investment managers at institutions.
But certainty for banks could open the floodgates. So, too, could further delay. Said McWilliams, “If we don’t bring this activity inside the banks, it is going to develop outside of the banks.”
