U.S. Banks Get Regulatory Approval to Hold Reserve Funds for Stablecoins

UTC by Bhushan Akolkar · 3 min read
U.S. Banks Get Regulatory Approval to Hold Reserve Funds for Stablecoins
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The OCC and the SEC have released new guidance detailing all the operational requirements for U.S. national banks to reserve funds while working with a stablecoin issuer.

On Monday, September 21, the U.S. Office of the Comptroller of the Currency (OCC) gave a regulatory nod to all federally chartered banks in the United States to hold reserve funds for stabelcoins. The OCC and the SEC jointly published the stablecoins guidance providing a detailed overview of stablecoin operations under the U.S. law.

So far, stablecoins operators were using U.S. banks for fiat sourcing. However, the regulatory clarity with respect to the operations was missing. The new guidance provides a clear understanding of stablecoin operations to the U.S. banks. In the press release, the acting Comptroller of the Currency Brian P. Brooks said:

“National banks and federal savings associations currently engage in stablecoin related activities involving billions of dollars each day. This opinion provides greater regulatory certainty for banks within the federal banking system to provide those client services in a safe and sound manner.”

The letter also notes that stablecoin operators can place assets in a reserve account with the national banks. This is to provide the banks with the assurance and confidence that the issuer has sufficient assets “backing the stablecoin in situations where there is a hosted wallet”. The bank will verify on a daily basis that the reserve account balances are always equal to or more than the issuers’ outstanding stablecoins. The OCC further added:

“[w]e are not presently addressing the authority to support stablecoin transactions involving un-hosted wallets. In addition, this letter only addresses the use of stablecoin backed on a 1:1 basis by a single fiat currency”

Dealing with Stablecoins in U.S.

In the letter, while referring to the USD-backed stablecoins, the OCC detailed how banks should handle the reserves. Under the leadership of OCC’s acting head Brian Brooks, the regulator has initiated several measures to bridge the gap between the crypto space and the existing financial system.

Recently, the OCC also permitted nationalized banks to offer crypto custodial services. Besides, it has also floated a national payment charter for fintech firms and other crypto exchanges. OCC’s pro-crypto approach shows that the U.S. is working on some major regulatory changes to accommodate cryptocurrencies.

Several stakeholders and industry analysts have cheered the move by the regulators. In the concluding note, the letter from the OCC asks banks to take due diligence and other risk factors before joining hands with any stablecoin issuer. It states:

“A bank should consider all relevant risk factors, including liquidity risk and compliance risk, before entering any agreement or relationship with a stablecoin issuer. The due diligence process should facilitate an understanding of the risks of cryptocurrency and include a review for compliance with applicable laws and regulations, including those related to the Bank Secrecy Act (BSA) and anti-money laundering”.

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