So what about us? While spot Bitcoin ETFs earn millions of dollars for companies that offer them to their clients, while international banking institutions try their hand at the joys of blockchain and the tokenization of various financial assets and while cryptocurrencies , Bitcoin in the lead, are increasingly popular all over the world, American banks seem to be at a standstill. The regulations in force in the United States keep them away from the current financial revolution and this cannot last! Here is in substance what the president of the Federal Deposit Insurance Corporation which is the agency that guarantees savers’ deposits. This leader calls for a paradigm shift in the SEC so as not to miss current opportunities that could be costly to the American economy. Details to follow.
The FDIC wants to change the rules of the game regarding banks…
In a notable speech at the Mercatus Center in Washington DC, the vice-president of the Federal Deposit Insurance Corporation (FDIC), Travis Hillswept away all the hot topics of the moment concerning American banks, from the recent bankruptcies of certain regional institutions to the hot topic of cryptocurrencies which are about to disrupt the old financial world. On this subject, there was talk of tokenization of financial assets, but also of spot Bitcoin ETFs from which banks are currently excluded for legal reasons. On these two themes, the manager is categorical:
“Bank customers and the U.S. economy could lose opportunities if the wrong approach is taken to regulating blockchain technology. »
Travis Hill, Vice President of the Federal Deposit Insurance Corporation (FDIC) – Source: fdic.gov
And when we talk about regulations in the United States, we talk about the DRY, because it is to it that we owe this delay in taking into account these new technologies, and in particular tokenization. After calling back the strengths of this technology such as the liquidity of assets, the speed of exchanges, the programmability of payments or even the facilitation of the issuance of various financial securities such as bonds or shares, he made the following declaration:
“Global standards are being established, directly or indirectly, with many non-US jurisdictions actively engaged in this area and at this point the US risks ceding its influence. »
Travis Hill, Vice President of the Federal Deposit Insurance Corporation (FDIC) – Source: fdic.gov
However, the regulatory agencies have tried to establish coherent policies, but without much success, he continues, because all the texts which regulate the sector are “heavy, unsuitable and unevenly applied”. Worse :
“The message heard by the vast majority of the industry could be interpreted to mean that we should not try! »
Travis Hill, Vice President of the Federal Deposit Insurance Corporation (FDIC) – Source: fdic.gov
…So as not to leave these financial institutions by the wayside!
But that’s not all, because Travis Hill also denounces an SEC directive called Staff Accounting Bulletin 121 (or SAB 121) and which defines the way in which a financial institution must display the crypto assets in its accounting. Published in March 2022, the text requires companies that hold cryptocurrencies to record their clients’ crypto holdings in their balance sheets as passive and this does not please the banks:
“This treatment is a clear departure from how custodians account for all other assets held in custody, which are typically held off-balance sheet and treated as the property of the client and not the custodian. »
Travis Hill, Vice President of the Federal Deposit Insurance Corporation (FDIC) – Source: fdic.gov
In fact, this directive prevents a bank from being cryptocurrency custodians of its clients, but above all to be on behalf of a Bitcoin ETF for example. And for the vice president of the FDIC, this is simply not normal:
“It is worth asking whether it is in the public interest for a cryptocurrency exchange to provide custody services for the majority of the market for approved Bitcoin exchange-traded products, when banks, being highly regulated, are effectively excluded from the market. »
Travis Hill, Vice President of the Federal Deposit Insurance Corporation (FDIC) – Source: fdic.gov
The question clearly deserves to be asked! And, this cry from the heart of American banks towards the SEC is ultimately rather logical insofar as all around them, new blockchain technologies are changing the rules of the game and they have, for the moment , no right to join the dance. The ball is in the court of the SEC which will have to respond point by point to an entire sector which does not want to miss the train of modernity.