The Texas Department of Banking has approved the holding of crypto assets by state-licensed institutions. The banking department’s statement is an admission that conventional risk-based evaluations by banks are adequate for providing bitcoin custody.
The following is the department’s statement:
Virtual currency is an electronic representation of value intended to be used as a medium of
exchange, unit of account, or store of value. Virtual currencies do not exist in a physical form.
Instead, they are intangible and exist only on the blockchain or distributed ledger associated with
that virtual currency. The owner of the virtual currency holds cryptographic keys associated with
the specific unit of virtual currency in a digital wallet. The keys enable the rightful owner of the
virtual currency to access and utilize it further.
What virtual currency custody services a bank chooses to offer will depend on the bank’s expertise,
risk appetite, and business model. For instance, the bank may choose to allow the customer to
retain direct control over their own virtual currency and merely store copies of the customer’s
private keys associated with that virtual currency.
The Texas Department of Banking released a notification today clarifying that state-chartered banks may hold cryptocurrencies on behalf of their customers as long as they have “sufficient mechanisms in place” to comply with the law.
Texas’ Crypto Friendly Stance
Though this seems to be a significant success for the state’s bitcoin businesses and consumers, the government believes that nothing has changed.
Last year, the agency issued a similar announcement, approving cryptocurrency.
Texas continues to take great advances in the area of cryptocurrency. Governor Greg Abbott has used Twitter to promote the government’s blockchain efforts.
Blockchain is a booming industry that Texas needs to be involved in.
— Greg Abbott (@GregAbbott_TX) June 5, 2021
Furthermore, banks with trust powers may provide fiduciary custody services, which means they owe the customer specific legal responsibilities, such as “keeping the asset securely and returning it undamaged upon request.”
State banking licenses differ from federal charters in that they provide financial organizations more options. Texas state banking licenses, on the other hand, have offered “super parity” with national banks since 1999. In other words, a Texas-licensed bank has the same authority as a federally chartered bank. As a result, Texas is a popular location for financial institutions. According to the Federal Deposit Insurance Corporation, it has the second-highest number of banks in the nation, after only California.
Steps Forward in Crypto Custody
Wyoming has pushed aggressively to recruit cryptocurrency-related businesses outside of Texas. Last year, a slew of blockchain legislation paid off, with cryptocurrency exchange Kraken becoming the first special purpose depository organization in the state, followed by Avanti.
The charters give these “crypto banks” the authority to not only offer custody, but also to settle transactions between cryptocurrencies and the US dollar—and even to issue their own stablecoins.
These institutions vary from federally chartered crypto banks Anchorage, Paxos, and Protego, which have licenses that let them to circumvent compliance concerns with money transmitter regulations in 50 states but do not let them to accept consumer deposits or use the Federal Reserve’s payment system.