Major US banks are reportedly considering expanding into the cryptocurrency market following encouraging signals from regulators, according to four industry executives.
These Wall Street giants, previously restricted from engaging in crypto activities due to stringent regulations, are now preparing to explore the sector through pilot programmes, partnerships, or limited crypto trading services.
However, the executives, who preferred to remain anonymous, noted that the largest lenders are proceeding cautiously, wary of being the first to overextend themselves in the crypto space and risk violating evolving regulations.
The executives added that should a major firm successfully expand its crypto operations without encountering regulatory issues, others will swiftly follow suit, initiating small-scale pilot projects and assessing further business opportunities in the digital asset market.
Jamie Dimon, CEO of the largest U.S. bank, JPMorgan Chase, ruled out getting into custody - storing crypto assets for clients - or expanding significantly 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 longtime crypto skeptic, told 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.
U.S. President Donald Trump vowed to become the first "crypto president" before he took office. He has since wooed the industry's elite at the White House, promised to boost the adoption of digital assets and said he aims to create a strategic bitcoin reserve.
While there are welcoming signs, banks are seeking even clearer guidelines from the government clarifying what they can do in crypto, more than half a dozen industry executives said.
"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 opportunity to engage and not a free pass," said Dario de Martino, A&O Shearman M&A partner who works on crypto-related issues.
Custody businesses to store and manage crypto assets are promising, bankers and executives said, but they have thin margins and potentially pose high risks.
Most banks are likely to enter custody businesses through partnerships with existing crypto firms, sources said.
Charles Schwab CEO Rick Wurster told Reuters earlier this month that the traffic lights from financial regulators were flashing "pretty green" for large firms to grow in crypto. The signals have reinforced Schwab's plans to offer spot crypto trading within a year, he said.
New regulators under Trump have also signaled more bank-friendly crypto policies. The U.S. Office of the Comptroller of the Currency paved the way for lenders to engage in some crypto activities, such as custody, some stablecoin activities and participation in distributed ledger networks.
The Securities and Exchange Commission also scrapped earlier accounting guidance that made it expensive for banks to deal in crypto.
Bank of America could launch stablecoins, its CEO Brian Moynihan said earlier this year, and the U.S. banking industry will embrace cryptocurrencies for payments if regulations permit them.
Meanwhile, Morgan Stanley wants to work with regulators to see how it can be a middleman for crypto-related transactions, CEO Ted Pick said earlier this year. The lender is also exploring adding crypto to its e-trade platform, a source said.
Some of the large banks are also exploring issuing a joint stablecoin, with the conversations in initial stages, another banking source said.
Big banks seek more clarity around anti-money laundering rules and supervision before diving deeper into crypto. They are also asking for consistent guidelines across banking and market regulators before launching new businesses in digital assets, whose values are volatile.
For now, banks are weighing their crypto prospects and running small-scale pilot programs.
"While a much-improved environment, banks will continue to have concerns around anti-money laundering and regulatory compliance," said Matthew Biben, co-head of the global financial services group at law firm King & Spalding.
Shifting landscape
Banks want to understand if they can engage in crypto lending, or if they are allowed to become market makers for digital assets, one of the banking sources said.
The rules for traditional banking businesses are very well defined and there is complete clarity over what a bank is allowed to do and what is outside their ambit, similar well-defined guidelines are needed for digital assets too.
The working group on crypto under David Sacks, the Trump-appointed crypto czar, has no representation from banking regulators, which needs to be amended if the big banks are allowed to play any meaningful role in the business, two banking sources said.
