On the 9th of February 2023, Ted Boydston put out a post on Twitter stating that stablecoins are inconsistent with safe banking practices and are therefore non-compliant.
The #FederalReserve has clarified that member banks can custody crypto, but cannot use that crypto as principal. Further, stablecoins are approved for use within a bank, but are inconsistent with safe banking practice if issued on public networks. https://t.co/lyPMomgUQn pic.twitter.com/rwnX2YU2xa
— Ted Boydston (@tboydsto) February 9, 2023
Attached to the tweet are screenshots from the recently released U.S. government Federal Reserve System document declaring that national banks do not have permission to hold crypto-assets including bitcoin and ethereum as the board generally believes that the issuance of tokens in an open, public, and decentralized network system is very likely to exhibit characteristics of inconsistency and lack of safety.
In the said document, the board released a policy statement to be effective on February 7, 2023. specifying that a state member bank must at all times conduct its business and exercise its powers with due regard to safety and soundness.
The Board proceeded to issue a statement highlighting significant risks associated with crypto-assets, that banking organizations should be aware of. This includes significant volatility in the crypto-asset sector, seeing as they had received inquiries from banks regarding potentially engaging in certain activities involving crypto-assets.
Firms in possession of crypto assets might not engage in calculated risk management. Based on the underlying value of most crypto assets, their anticipated discounted cash flows, or the historic behavior of the relevant markets the crypto asset sector is largely non-compliant with disclosure and accounting requirements from a market conduct perspective. This opacity may make it difficult or impossible to assess market and counterparty exposure risks leading to a heightened risk of fraud, legal uncertainties, and risks associated with open, public, and/or decentralized networks.
In light of these risks, as already expressed in the policy statement, the Board generally believes that the same bank activity, presenting the same risks, should be subject to a regulatory framework, regardless of which agency supervises the bank.
Mario Nwfal tweeted on Thursday that the SEC, NYDFS, and the OCC are prepared to bring in a legion of enforcement led by Gary Gensler in targeting exchanges, banks, and tokens.
This principle of equal treatment helps to level the competitive playing field among banks with different charters and different federal supervisors and to mitigate the risks of regulatory arbitrage.
The Board believes this decision is reinforced by safety and soundness as they believe the value of most crypto assets is driven largely by sentiment and future expectations, and not by cash flows from providing goods or services outside the crypto asset ecosystem.