Does anyone understand what was wrong with SAB 121? I thought it requires banks to hold bitcoin if you deposit bitcoin.
Why was that bad?
Discussion
I believe the reserve requirements made it functionally impossible due to the cost of holding enough capital to backstop. Just given the way banks work, it would have been very punitive and disincentivizing
I don’t understand why SAB 121 wouldn’t be satisfied by not rehypothecating or selling deposited bitcoin.
I get it that if I deposit $100 worth of dollars the bank doesn’t hold it, they buy something with that money. But with bitcoin I would expect bank to be a mere custodian, not the owners of the bitcoin with debts to depositors denominated in bitcoin.
That really would be a huge drag on the bank’s return on assets / capital. That model only works when you’re charging fees for service, a la Custodia Bank. Doesn’t work if you don’t charge for holding deposits, checking, service fees, etc
Not directly related to SAB 121, but in terms of two opposing views on future Bitcoin yields / banking etc., I really enjoyed this conversation between nostr:npub1gdu7w6l6w65qhrdeaf6eyywepwe7v7ezqtugsrxy7hl7ypjsvxksd76nak and nostr:npub15dqlghlewk84wz3pkqqvzl2w2w36f97g89ljds8x6c094nlu02vqjllm5m late last year. And despite Michael getting a little upset with Saif’s rock solid reasoning and view, they wrapped it up cordially like the men that they are.
Equal Bitcoin + equal value in dollars iirc.
This. If a bank wanted to hold $1M in BTC, they’d also have to hold $1M in USD. Because volatility, risky, etc etc.
Is that true? Wouldn’t holding the bitcoin itself satisfactory?
Probably depends on how it is insured. If it is FDIC then no. I agree, there really shouldn't be an issue. But in a world where dollars are expected it is still difficult.
Dollar banking is still by far the dominant form. That won't change quickly.
That *was* the rule. Now they don’t *also* need to hold that $1M USD.
I think the problem is that if #Bitcoin did a quick 10x they would have to get a hold of 10x more USD in short order.
Is that true only if they sold or lent the deposited bitcoin?
I think that is true if they custody #Bitcoin. So if they are holding Bitcoin for their customers and Bitcoin starts ripping like it does sometimes, they would have a difficult time coming up with the required USD to be compliant.
It sounds to me like SAB121 wanted banks to never touch bitcoin, and it effectively forbade banks from just taking custody of it by assigning a value of $0 to the bitcoin on the asset side of their balance sheet but requiring mark to market accounting on the liability side…so depositing $200M of bitcoin would require bank to add $200M of non-bitcoin assets to their balance sheet to cover the deposit.
That’s lame as hell.
Worse if Bitcoin increased in value they would need to acquire more assets to cover the risk.
I suspect this was pushed by the Elizabeth Warren pro-bank regime as Gensler was her lapdog. They were so blinded by an anti-crypto mindset that they worked against the banks in this instance. It seems like it would have made more sense for their side to help banks to custody as much Bitcoin as possible to try to control a large portion of the supply (like the ETFs).
This requirement was apparently impossible for banks to meet but with the SAB121 repeal there will be many offering custody services. Bank of New York Mellon is supposed to be the first, completely built out and just waiting for SAB121 to be repealed.
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