Plans are in advanced stage to permit banks to start holding cryptocurrencies the way they hold other traditional assets. The shift in policy was made known to Reuters by the head of the US agency Federal Deposits Insurance Corporation, Jelena McWilliams.
McWilliams stated that the interest in cryptocurrency as a rising asset class would necessitate that banks are empowered to be more involved in the space, especially with respect to custodial services that enable clients to conveniently trade the assets as well as hold cryptocurrencies as collateral for loans.
McWilliams said that the regulators are working on creating a roadmap through which this could be realized while focusing on their oversight function over the banking sector.
She maintained that the banks would be able to hold these assets as part of their existing portfolios the way they hold other assets such as securities.
McWilliams, who spoke on the sidelines of a fintech conference on Tuesday, October 26, adding that allowing crypto assets to grow outside the banking sector would make it difficult to be regulated.
“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.”
The main regulators of US banks, The Federal Reserves, The FDIC and The US Comptroller of Currencies are already creating a roadmap that seeks to bring the asset within operational reach of the banks.
The fast rate of development of digital assets made it a grey area among US banks, even though a few such as Bankcorp are already into crypto custodial services despite an absence of a clear policy regarding bank involvement in digital currencies.
One of the challenges that regulators are faced with in charting a course for banks involvement in digital currencies is the volatility of the assets. This much was made known by McWilliams in the interview when she stated that:
“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.”