The FDIC’s Revised Guidelines for Banks in Crypto Activities
The Federal Deposit Insurance Corporation (FDIC) is in the process of updating its guidelines for banks involved in crypto-related activities, according to Barrons. The proposed changes aim to streamline the process for banks to engage in certain crypto activities without the need for prior regulatory approval. This move comes as some banks have been advocating for the ability to offer crypto custody services and explore tokenized deposits as a potential alternative to stablecoins.
Tokenized Deposits and Banking Infrastructure
One of the key changes being considered is the integration of tokenized deposits with checking accounts using blockchain technology. This shift indicates a move towards adapting traditional banking infrastructure to the rapidly evolving digital asset landscape.
New Documents Unveiled by FDIC
On Feb. 5, the FDIC disclosed 175 documents related to its oversight of banks engaging in crypto services or seeking to do so. These documents shed light on the agency’s changing stance towards crypto activities within the banking sector.
The documents specifically address the 2022 “pause letters” that were sent to 24 financial institutions, advising them to refrain from offering crypto-related services. This disclosure signifies a shift in transparency and openness within the FDIC.
Transparency and Compliance
FDIC Acting Chairman, Travis Hill, emphasized the agency’s commitment to transparency beyond what is mandated by the Freedom of Information Act (FOIA). The release of these documents is an effort to provide clarity and insight into the regulatory process surrounding crypto activities in banks.
The release of the documents came in response to a FOIA request filed by Coinbase in October. The request sought clarification on a purported 15% deposit cap imposed on crypto-friendly banks. While the initial documents were heavily redacted, a less censored version was made available on Jan. 3.
Challenges Faced by Banks
The released documents reveal a pattern of resistance from the FDIC towards banks seeking to offer crypto-related services. Requests from banks were met with delays, information requests, and a lack of clear guidance, leading many banks to abandon their efforts in this space.
According to Coinbase’s chief legal officer, Paul Grewal, the FDIC employed tactics such as “regulation by exhaustion” to pressure banks into halting their crypto services. This strategy involved repeated requests for information and delays, ultimately discouraging banks from pursuing crypto-related offerings.
Risks and Concerns
The FDIC cited concerns such as BTC volatility, reputational risk, and consumer protection as primary reasons for pausing crypto services. This cautious approach has led to a significant number of banks refraining from entering the crypto market.
Caitlin Long, founder and CEO of Custodia Bank, highlighted instances in the released documents where the FDIC expressed reservations about accepting deposits from crypto firms. This cautious stance reflects the regulator’s concerns about the potential risks associated with crypto deposits.