A team of US regulators is reportedly looking to create a roadmap to allow banks in the US the ability to deal with crypto assets.
This was revealed by Reuters in an interview with the president of the Federal Deposit Insurance Corporation (FDIC), Jelena McWilliams.
Summary
Crypto in banks, the path in the US
The FDIC is an independent agency that manages funds from the US federal budget and, in addition to providing deposit insurance for banks, also oversees the solvency of state-owned banks that are not under the authority of the Fed.
Its officials, according to McWilliams, are trying to provide a clear path for banks that wish to hold cryptocurrencies on behalf of their clients.
There is speculation that this path could include clearer rules on holding cryptocurrencies in custody, for example to facilitate trading for clients, or to use them as collateral for loans. Nor is there any suggestion that they could have them on their balance sheet as other assets.
According to McWilliams, banks should be allowed to operate directly in the crypto sector, while managing and mitigating risks appropriately.
McWilliams adds:
“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”.
Banks and cryptocurrency custody, the challenges ahead
The current regulatory framework makes it almost impossible for US banks to operate directly in the crypto markets, particularly in terms of the crypto services they might offer their customers.
One of the biggest issues is how to regulate the safekeeping of tokens on behalf of their customers, and how to mitigate the risks while ensuring high levels of security for account holders.
Some banks have already started experimenting with this, but they are operating within a regulatory framework that is unclear and therefore risky.
If a new regulatory framework were created, it would make it possible for banks to operate with these new financial products safely. This could literally result in an explosion of crypto services offered to account holders.
Once such a framework is in place, crypto assets may not only be held by banks on behalf of their customers, but used as a basis for further services, primarily as collateral for loans.
Looking at DeFi
McWilliams admits that it is still difficult to see how such volatile assets could be used as collateral or included in bank balance sheets, but at least in the first case, many DeFi protocols can be used as examples.
It will be more complicated to find a way to include them in the balance sheet.
Certainly, this initiative is not out of the ordinary, and it is likely to be the consequence of some kind of request to the regulator from the banking sector itself, which might welcome the possibility of offering its customers new profitable services.
