On September 21, 2020, the Office of the Comptroller of the Currency (OCC) issued an interpretive letter clarifying the authority of national banks and federal savings associations (FSAs) to hold reserves of assets backing stablecoins on behalf of customers that issue stablecoins.

Stablecoins are pegged to the value of an underlying asset, such as gold or a fiat currency like the US dollar, making them less susceptible to volatility than traditional cryptocurrencies or virtual currency (VC). Cryptocurrencies, including stablecoins, are generally held in wallets that are either hosted or un-hosted. A hosted wallet is an account-based software program for storing cryptographic keys controlled by a third party, whereas an un-hosted wallet is maintained by an individual owner.

The interpretive letter concludes that a national bank may hold reserves of assets backing stablecoins in situations where there is a hosted wallet because, as the OCC recently reaffirmed, such banks may provide permissible banking services, such as receiving deposits, to any lawful business they choose, including cryptocurrency businesses, provided they effectively manage the risks and comply with applicable law (see Legal Update, US Banking Agencies Release Joint Statement Emphasizing Risk-Focused Approach to BSA/AML Compliance Program Examinations). FSAs are likewise authorized to take such deposits.

The interpretive letter applies only to hosted wallets and stablecoins backed on a 1:1 basis by a single fiat currency where the bank verifies at least daily that reserve account balances are always equal to or greater than the number of the issuer's outstanding stablecoins.

For more information on cryptocurrency and VC regulation, see Cryptocurrency and Virtual Currency Regulatory Tracker.