U.S. banks have largely stayed out of cryptocurrency custody owing to an SEC Staff Accounting Bulletin (SAB) 121. Following significant pushback from Republican Representatives, at the end of October the Government Accountability Office (GAO) gave a ruling. It stated that because of the impact of the bulletin, it should have been subject to Congressional review but failed to go through that process. Hence, yesterday lawmakers sent a letter to the federal banking regulators – the Federal Reserve, OCC, FDIC and NCUA – asking them to clarify that they will not enforce SAB 121.
Generally if assets are held in custody, they do not appear on the custodian’s balance sheet because they belong to the client. The SEC accounting bulletin applies to all public companies, not just banks. It requires any crypto custodian to show the assets under custody as both an asset and liability on the balance sheet. This is extremely unorthodox. Even Federal Reserve Chair Jerome Powell acknowledged this treatment is not the norm. According to the SEC, the rationale is there is some risk because it’s crypto, hence the need to show a liability.
However, for banks there’s a far bigger secondary impact. Basel rules, which aim to ensure banks don’t take too many risks, have requirements relating to balance sheets. The net effect is for every dollar of crypto held in custody, banks would have to set aside a dollar of capital. That makes crypto custody extremely expensive.
Article continues …
Want the full story? Pro subscribers get complete articles, exclusive industry analysis, and early access to legislative updates that keep you ahead of the competition. Join the professionals who are choosing deeper insights over surface level news.
