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U.S. Regulators Investigating Role That Banks Could Play in Crypto Industry

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This story originally appeared on be[IN]crypto

An interagency team of U.S. banks regulators, namely the Federal Deposit Insurance Corporation (FDIC),  the Federal Reserve, and the Office of the Comptroller of the Currency, are putting their heads together to come up with a regulatory roadmap for banks to incorporate cryptocurrencies into their service offerings.

– be[IN]crypto

Clearer rules regarding holding cryptocurrency to facilitate client trading, using them as collateral for loans, and holding them on balance sheets as assets, are among the issues that are being addressed by the regulators.

However, the volatility of cryptocurrencies makes it difficult to determine how to use them as collateral, and include them on bank balance sheets. Risk management and mitigation, according to McWilliams, are key if banks are going to operate in this space. Some banks have already started dabbling, such as JP Morgan and Goldman Sachs, in the midst of regulatory murkiness. 

The FDIC’s position regarding crypto

The FDIC acknowledged that there are novel and unique considerations related to digital assets in May 2021. It started gathering comments and information from interested parties to better understand the industry’s and consumers’ interests in the digital assets, following banks’ early interest and participation in the digital asset ecosystem.  

Ms. McWilliams said in a conversation with marketplace.org in 2019 that a whole central banking system could be disrupted by cryptocurrencies. She voiced her desire to straddle two extremes; she didn’t want the FDIC to give the green light to something they are not sure about, nor did she want to discourage innovation.

Will the FDIC insure crypto deposits?

When a bank fails in the U.S., it’s the responsibility of the FDIC to liquidate bank loans and other assets. The FDIC recently partnered with crypto custodian firm, Anchorage, to help it liquidate a bank’s crypto assets. Anchorage will help it store and sell any bitcoin and other digital assets if a bank fails. It is not yet clear whether the FDIC will contemplate investor protection mechanisms for people who invest with Coinbase or Gemini. Again, the volatility of cryptocurrencies complicates the insurance cover. Coinbase has had insurance with Lloyd’s of London since 2013, to protect more than $255M in assets, and has one of the strongest cybersecurity systems among crypto exchanges globally.

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This story was seen first on BeInCrypto

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