Big U.S. banks are holding internal discussions about expanding into cryptocurrencies as they get stronger endorsements from regulators, but initial steps will be tentative, centering on pilot programs, partnerships or limited crypto trading, according to four industry executives. Wall Street giants that had been largely blocked from many crypto activities by strict regulations are poised to grow quickly.
Yet the biggest lenders are still hesitant to be the first among rivals to expand too heavily into crypto in case they fall afoul of changing rules, said the four executives, who declined to be identified since they were discussing internal business plans.
If a major firm expands without issues, others will be fast followers to run small-scale pilot projects and weigh other business prospects, the executives said.
Jamie Dimon, CEO of the largest U.S. bank, JPMorgan Chase (JPM.N), 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.
Meanwhile, Morgan Stanley (MS.N) 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.
