FDIC Chairman – U.S. Regulators Exploring Framework For Crypto-Bank Interaction

In an encouraging news for cryptocurrencies and blockchain technology, Federal Deposit Insurance Corporation (FDIC) Chairman Jelena McWilliams said in an interview to Reuters on Oct 25 that the U.S. Regulators were exploring a framework for banks to offer crypto related services by providing some clarity over the regulatory hurdles. The move is likely to enhance FDIC’s control over cryptocurrencies – one of the agencies responsible for providing depository insurance in American depository institutions.

FDIC chairman further reiterated that the U.S. regulators were developing rules for crypto holding on their client’s behalf and even using crypto as a balance sheet asset. It is believed that three major U.S. agencies FDIC, Federal Reserve and Office of the Comptroller of the Currency are currently coordinating to develop this framework. The regulatory clarity is much needed to instill sense of confidence in blockchain companies and developers.

I think that we need to allow banks in this space, while appropriately managing and mitigating risk. 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.

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. The easiest issue would be getting regulators to lay out a roadmap for providing custody to crypto assets. However, it is difficult to figure out how to allow the volatile asset as collateral and include it on bank balance sheets.

The issue there is … valuation of these assets and the fluctuation in their value that can be almost on a daily basis. You have to decide what kind of capital and liquidity treatment to allocate to such balance sheet holdings.