- The cryptocurrency “sprint” team has been conducting meetings with an aim to create a way for banks to be able to custody crypto assets.
- Federal Deposit Insurance Corporation (FDIC) Chair Jelena McWilliams believes it’s time to allow banks to hold cryptocurrency.
- “If we don’t bring this activity inside the banks, it is going to develop outside of the banks,” she said.
The inter-agency crypto “sprint” team, which was launched by the FDIC, OCC, and the Federal Reserve, has been meeting to create a way for banks to be able to custody crypto assets.
In order to keep control over the booming crypto market, the inter-agency team aims to provide banks with clear rules over using crypto as collateral for loans, holding crypto in custody for clients, and even holding crypto-assets in balance sheets like other traditional assets, according to a report by Reuters.
Jelena McWilliams, chair at the Federal Deposit Insurance Corporation, approved the news saying she is working to formally enable banks to hold digital assets. “I think that we need to allow banks in this space, while appropriately managing and mitigating risk,” she said.
In an attempt to set sights on the largely unregulated crypto market, the Fed, OCC, and FDIC, three top financial regulators in the US, rolled out a cryptocurrency “sprint” team back in May. McWilliams’ recent comments provide an insight into the team’s objectives.
McWilliams pointed out the need for allowing banks to hold cryptocurrencies. “If we don’t bring this activity inside the banks, it is going to develop outside of the banks. … The federal regulators won’t be able to regulate it,” she said, adding:
My goal in this inter-agency 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. At some point in time, we’re going to tackle how and under what circumstances banks can hold them on their balance sheet.
McWilliams said it would not be much of a problem to get lawmakers to set up a roadmap for allowing banks to custody crypto-assets. But she acknowledged that there would be challenges, mentioning it would be hard to allow banks to hold a volatile asset as collateral.
“The issue there is … valuation of these assets and the fluctuation in their value that can be almost on a daily basis,” McWilliams said. “You have to decide what kind of capital and liquidity treatment to allocate to such balance sheet holdings.”
“Sprint” Team Scrutinized Crypto Lenders
In late July, the inter-agency team stretched its oversight to the DeFi lending and savings platform BlockFi, scrutinizing the crypto lender over its BlockFi Interest Accounts (BIAs). Subsequently, regulatory bodies from numerous states asked crypto interest providers like Celsius to clarify why their lending accounts should not be considered securities.
The US Securities and Exchange Commission (SEC) even warned to sue Coinbase if the exchange launches its Lend program. Following this, Coinbase decided to drop plans for its Lend program.