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

LAS VEGAS, Oct 26 (Reuters) – A top U.S. banking regulator said U.S. officials want to offer banks and their customers looking to hold cryptocurrencies a clearer way to stay in control of the rapidly evolving asset.

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

This could include clearer rules for custody of cryptocurrencies to facilitate customer trading, using them as collateral for loans, or even holding them on their balance sheets like more traditional assets.

“I think we need to allow 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 get this activity inside the banks, it will develop outside of the banks. … Federal regulators will not be able to regulate them.”

McWilliams’ comments provide the most comprehensive picture yet of what regulators are investigating as part of a cryptocurrency “sprint” team first announced in May. The team’s goal was to ensure cryptocurrency policy coordination between the three main US banking regulators – FDIC, Federal Reserve and Office of the Comptroller of the Currency.

The rapid emergence of cryptocurrencies has resulted in a murky regulatory picture in the United States. Under the previous leadership, the OCC took an aggressive approach to bringing cryptocurrency into banks, including blessing cryptocurrency bank custody services, while other agencies acted more slowly.

Those decisions are under review, Acting Comptroller Michael Hsu said.

Some banks have already started dabbling in these areas without regulatory clarity. Earlier this month, US Bancorp (USB.N) announced that it will launch a cryptocurrency custody service for institutional investment managers.

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

“My goal in this multi-agency group is to basically provide a way for banks to act as custodians of these assets, using crypto assets and digital assets as a form of collateral,” McWilliams said on a conference panel.

“Eventually we will look at how and under what circumstances banks can keep them on their balance sheets.”

McWilliams recognized the challenges.

The easiest problem would be getting regulators to create a roadmap for custody of crypto assets, she said. However, it is difficult to figure out how to allow the volatile asset to be accepted as collateral and included on banks’ balance sheets, she added.

“The problem there is … the valuation of these assets and the fluctuations in their value that can occur on an almost daily basis,” McWilliams said. “You have to decide what kind of capital and liquidity treatment you want to assign to such balance sheet items.”

Reporting by Echo Wang; writing from Pete Schroeder; Edited by Megan Davies and Richard Chang

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