Associations Recommend Revising Bank Policies on Digital Assets
Commentary by Steven Lofchie
The Bank Policy Institute, American Bankers Association, Financial Services Forum, SIFMA and The Clearing House (together, the "Associations") urged the President's Working Group on Digital Asset Markets ("PWG") to revise regulatory policies that hinder US banks from participating in digital asset activities. (See related coverage.)
In a joint letter to David Sacks, Chair of the PWG, the Associations asserted that "the federal banking agencies' policies and guidance issued over the last few years regarding digital assets activities has hindered banks' ability to engage in those activities, and, in turn, the competitiveness of the United States financial system, as non-U.S. firms are not subject to similar requirements." They further asserted that "the United States will not be able to achieve a leadership position in digital assets and financial technology under the status quo."
The Associations recommended:
1) Rescinding or Revising Banking Agency Policies on Digital Assets. The Associations identified specific policies and guidance on digital assets issued by the FRB, the OCC and the FDIC that "should be rescinded or substantially revised." The Associations argued that these policies create an uneven playing field, making it difficult for US banks to compete with international firms not subject to similar restrictions. The policies include:
- Federal Reserve: SR 22-6 ("Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking Organizations"), SR 23-7 ("Creation of Novel Activities Supervision Program") and SR 23-8 ("Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens").
- OCC: Interpretive Letter #1179, which imposed additional supervisory hurdles on banks engaging in cryptocurrency activities.
- FDIC: FIL-16-2022, requiring banks to notify the FDIC before engaging in crypto-related activities.
- Joint Statements: On Crypto-Asset Risks to Banking Organizations and on liquidity risks resulting from crypto-asset market vulnerabilities.
2) Including Federal Banking Agencies in the PWG. The Associations emphasized the need to remove regulatory roadblocks and to involve federal banking agencies in the PWG's initiatives.
The Associations requested a meeting with PWG leadership to discuss these concerns and provide additional recommendations.
Commentary
The refusal of the bank regulators to allow banks to custody digital assets has likely resulted in significant damage to investors. Had the bank regulators permitted banks to provide custodial services, the losses at, for example, FTX, would likely have been far lower—as investors would have used regulated bank custodial services rather than relying on FTX.
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