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Stablecoin funds are admitted in US banks

Photo of: Joseph Stone
by Joseph Stone

US national banks get the green light from the regulator to hold the reserve funds of the stablecoins backed by a fiat currency. Legislation continues to ease in the United States.

The gap between traditional banks and the players in cryptocurrency is narrowing even further. At the end of July, the Office of the Comptroller of the Currency (OCC) opened up the possibility for banks to offer crypto-custody services.

In a six-page letter, the regulator further relaxed the regulation for national banks and federal savings associations. The latter can now hold the reserve funds of issuers in certain stablecoins.

Thus, “issuers of stablecoins may wish to place assets in a reserve account with a national bank to ensure that the issuer has sufficient assets to secure the stablecoins in situations where there is a hosted portfolio,” notes the OCC.

For this reason, the U.S. regulator believes that a domestic bank may hold such stablecoin “reserves” as part of the banking services it markets to its customers.

This regulatory relaxation, however, does not apply to all stablecoins. For example, where such e-money is based on a non-hosted wallet, the reserve funds cannot be held by a bank.

In addition, only cryptocurrencies backed by fiat currency in a 1:1 ratio will benefit from the new policy. Stablecoins based on a basket of currencies, such as Libra, will have to wait for a new decision by the regulator.

“This letter only applies to the use of stablecoin guaranteed on a 1:1 basis by a single currency, where the bank verifies at least daily that the balances in the reserve accounts are always equal to or greater than the number of outstanding stablecoins of the issuer,” the OCC states.

Thus, a new potential market is opening up for banking players. But this is not without conditions. The American authority reminds them that such an activity remains subject to the regulations on money laundering, KYC and securities.

“A bank must consider all relevant risk factors, including liquidity risk and compliance risk, before entering into an agreement or relationship with a stablecoin issuer,” the OCC insists.

However, U.S. federal banks are already involved in stablecoin activities, as the OCC points out. Brian Brooks points out that banks “are currently involved in stablecoin activities, involving billions of dollars every day. ยป

This legislation is very big news for stablecoins which look like they will play an important role in the economy in the next few years. Their 1:1 backing is enough to reassure banks that they’re a safer alternative to other cryptocurrencies while still offering the same attractive features.