US SEC's Crypto Guidelines Push Up Costs for Lenders, Disrupting Projects

Banks' cryptocurrency projects have been upended by U.S. Securities and Exchange Commission (SEC) accounting guidance that would make it too capital-intensive for lenders to hold crypto tokens on behalf of clients, Reuters reported Friday, citing more than half a dozen people with knowledge of the matter. From the report: A slew of lenders including U.S. Bancorp, Goldman Sachs Group, JPMorgan Chase, BNY Mellon, Wells Fargo, Deutsche Bank, BNP Paribas and State Street offer or are working on crypto products and services for clients in a bid to tap in to the $1 trillion crypto market, according to their public statements and media reports.

But on March 31, the SEC said public companies that hold crypto assets on behalf of clients or others must account for them as liabilities on their balance sheets due to their technological, legal and regulatory risks. While the guidance applies to all public companies, it is especially problematic for banks because their strict capital rules, overseen by bank regulators, require them to hold cash against balance sheet liabilities. The SEC did not consult the banking regulators when issuing the guidance, according to four of the people. The SEC's move complicates banks' efforts to jump on the digital asset bandwagon, and could keep them on the sidelines even as they report increased demand from clients looking to access the burgeoning market. "This has thrown a huge wrench in the mix," one of the sources said. Lenders building out crypto offerings have had "to cease moving forward with those plans pending any kind of further action from the SEC and the banking regulatory agencies," they added. Custody banks State Street and BNY Mellon, which have been building digital asset offerings, are among those whose projects have been disrupted, according to three people with knowledge of the matter.

Good

[rsilvergun]

The last thing we need is real Banks and real financial systems dabbling in ultra high risk investments (and I use the term loosely) like crypto.

The goal here is stupidly obvious it's to take a bunch of cryptocurrencies bundled them together into investment securities and resell those investment securities for high profits.

Then you get a bunch of banks passing around bad securities until one of them gets caught holding the bag when the inevitable crash hits.

This is exactly what happened with the mortgage backed securities in 2008 but at least there there was a limit to the losses because there were houses behind those mortgages.

Try to imagine how much worse 2008 would have been if instead of houses backing those securities it had been pictures of distressed primates and a handful of bits and bites stored on hard disk drives.

It would make the Great depression feel more like the.com boom. We'd look back wistfully at the days of 2008 in the wake of a crash of that magnitude.

Keep all this in mind during the midterm and the next big general elections. You need to put people in charge that will properly maintain and regulate the economy.

Re:

[bubblyceiling]

Banks holding crypto for customers is like wolves guarding the henhouse

Re:

[rsilvergun]

No because hens are innocent and the cryptocurrency guys are generally scammers themselves. It's more like wolves guarding a hen house full of other wolves were dressed up like chickens trying to lure in actual chickens.

Not sure I follow the logic

[Retired Chemist]

I have no use for crypto and think is generally a scam, but I cannot follow the logic of this. If they are holding crypto for a client and not guaranteeing the value, why should it be a liability. If I but assets in a safety deposit box, the bank might have a liability if they were stolen, but not if they became worthless for some other reason (bonds which defaulted or something of that sort). If the bank then lent crypto out like they do money, then there might be an issue given the volatility of the va

Re: Not sure I follow the logic

[topham]

Because otherwise they are treated as an Asset to the bank.

The bank is not just sitting in them doing nothing, they are leveraging them for some other purpose.

Your safety deposit box assets aren't the banks, their liability is very limited because:they aren't leveraging the asset to borrow money or to buy things; they simply charge you a storage fee for holding the item.

2007-2008

[VeryFluffyBunny]

Hey, I hear there's going to be a sequel to the super-famous financial crisis fiasco of 2007-2008. They're still deciding on what year(s) to name it after.

Re:

[ffkom]

Hollywood does not need to wait for that decision with the production, they'll name their movies about it "Margin Call 2" or the "The Big Short 2", given how much they like sequels, and the background will be "crypto-currency stuff", anyway.

Re:

[VeryFluffyBunny]

No, I mean in real life. We're gonna bail out the fucking banks with tax payer money again, followed by stimulus that only goes to the rich & austerity for the rest of us.

Pyramids

[gavron]

There's been this question of whether digital currency are assets or investments or gambling. The US federal agencies including FINCEN, FINRA, SEC, FTC have failed to provide bright-line guidance. That's to be expected on anything "new" which the word for is now spelled "disruptive."

Banks aren't allowed to do gambling. SO absent the designation that digital currency is NOT gambling, banks can't get involved. I'll save you the boredom of repeating why this also applies to investment houses, brokerages, a

Something smells off...

[Petersko]

The banks do what they please, regulators be damned. If they're going to roll over on this one I suspect they want an easy way out they can blame on somebody, and an excuse to abandon the sunk costs. "Oh no! You mean we can't do that anymore? Aww...well, okay..."

Cryptocurrency regulation

[Required Snark]

This is a step on the road to the regulation of cryptocurrency. They are starting with the banks because regulatory mechanisms are well established for that economic sector.

This is a good thing. The fraud level in the crypto economic sector is sky high, and the amount of money (or pretend money) involved is so large that the traditional economic sectors are at risk. Better to bite the bullet now rather then wait for a world wide crash. Unless it's already too late...