FedIC chair says banks could soon be able to use digital assets as collateral

The Chair of the Federal Deposit Insurance Corporation, Jelena McWilliams, says that officials in the U.S. are looking into allowing banks to use crypto assets as collateral as well as custody them.

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McWilliams told Reuters in an interview that a number of regulators in the U.S. are collaborating on a plan to make cryptocurrencies accessible to banks.

I think that we need to allow banks in this space, while appropriately managing and mitigating risk. If we don't bring this activity outside the banks, it is going to develop outside of the banks. The federal regulators won't be able to regulate it, said McWilliams.

The collaborating agencies include the Federal Reserve, OCC and the FDIC. This interagency team was announced in May and little has been mentioned about the team until McWilliam's comments.

Her comments have revealed that the team plans to integrate cryptocurrency into the traditional system and regulate it as opposed to restricting or ignoring it.

My goal in this interagency group is to basically provide a path for banks to be able to act as a custodian of these assets, use crypto assets, digital assets as some form of collateral, said Mcwilliams.

McWilliams also touched on some of the challenges to the integration of cryptocurrency into the existing banking ecosystem. Her main concern was the volatility which could pose issues with crypto as collateral, among other things.

The issue there is valuation of these assets and the fluctuation in their value that can be almost on a daily basis, McWilliams said. You have to decide what kind of capital and liquidity treatment to allocate to such balance sheet holdings.