Major US banks are reportedly engaged in internal discussions about venturing into cryptocurrencies, driven by stronger endorsements from regulators. However, their initial steps will be tentative, focusing on pilot programs, strategic partnerships, or limited crypto trading activities, according to four industry executives.
Wall Street giants, which have largely been restricted from various crypto activities due to stringent regulations, are now poised for potential growth in this sector.
Despite the welcoming regulatory signals, the largest lenders remain hesitant to be the first among their rivals to significantly expand into crypto, fearing potential clashes with evolving regulations. This was disclosed by the four executives, who requested anonymity as they were discussing confidential internal business plans.
The executives indicated that if a leading firm successfully expands without issues, others are likely to swiftly follow suit, launching small-scale pilot projects and exploring broader business prospects within the crypto space.
Jamie Dimon, CEO of JPMorgan Chase JPM.N, the largest US bank, has ruled out engaging in custody services for crypto assets or undertaking significant expansion, even if regulations ease.
“When I look at the bitcoin universe, the leverage in the system, the misuse in the system, the money laundering issues, trafficking, I’m not a fan of it,” Dimon, a long-standing crypto skeptic, informed investors last week.
“We’re going to allow you to buy it, we’re not going to custody it. … I don’t think you should smoke, but I defend your right to smoke. I defend your right to buy bitcoin,” he added, drawing a parallel.
US President Donald Trump had vowed to become the first “crypto president” before taking office. He has since actively engaged with the industry’s elite at the White House, pledged to boost the adoption of digital assets, and expressed his aim to establish a strategic bitcoin reserve.
While there are encouraging signs, banks are seeking even clearer governmental guidelines that precisely define their permissible activities in the crypto domain, as stated by more than half a dozen industry executives.
“The shift in the stance is encouraging for traditional lenders, but they are still approaching it with caution and viewing the changes in regulation as an an opportunity to engage and not a free pass,” commented Dario de Martino, an A&O Shearman M&A partner specializing in crypto-related issues.
Bankers and executives suggest that custody businesses, which involve storing and managing crypto assets, hold promise. However, they are characterized by thin profit margins and potentially high risks.
Sources indicate that most banks are likely to enter the custody business through collaborations with existing crypto firms.
Charles Schwab CEO Rick Wurster told Reuters earlier this month that financial regulators were signaling “pretty green” for large firms to expand in crypto. He noted that these signals have reinforced Schwab’s plans to offer spot crypto trading within a year.
New regulators under the Trump administration have also signaled more bank-friendly crypto policies. The US Office of the Comptroller of the Currency has already paved the way for lenders to engage in certain crypto activities, such as custody services, some stablecoin activities, and participation in distributed ledger networks.
The Securities and Exchange Commission also recently rescinded earlier accounting guidance that had made it financially burdensome for banks to engage in crypto.
Bank of America BAC.N could launch stablecoins, its CEO Brian Moynihan said earlier this year, adding that the US banking industry would embrace cryptocurrencies for payments if regulations permitted.
Meanwhile, Morgan Stanley aims to collaborate with regulators to explore its potential role as a middleman for crypto-related transactions, as stated by CEO Ted Pick earlier this year. A source also revealed that the lender is exploring the addition of crypto to its e-trade platform.
Some large banks are also in the initial stages of discussions about issuing a joint stablecoin, another banking source disclosed.
Before diving deeper into crypto, major banks are seeking greater clarity regarding anti-money laundering rules and supervisory frameworks. They are also requesting consistent guidelines across banking and market regulators before launching new businesses in digital assets, whose values are inherently volatile.
For now, banks are carefully evaluating their crypto prospects and conducting small-scale pilot programs.
“While a much-improved environment, banks will continue to have concerns around anti-money laundering and regulatory compliance,” noted Matthew Biben, co-head of the global financial services group at law firm King & Spalding.
Shifting Landscape
One banking source stated that banks are keen to understand whether they can engage in crypto lending or if they are permitted to become market makers for digital assets.
The rules for traditional banking businesses are clearly defined, providing complete clarity on what a bank is allowed to do and what falls outside its scope. Similar well-defined guidelines are deemed necessary for digital assets.
Two banking sources pointed out that the working group on crypto under David Sacks, the Trump-appointed crypto czar, currently lacks representation from banking regulators. This, they suggested, needs to be rectified if large banks are to play any meaningful role in the crypto business.
