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Industry Opinion
Are Banks Going to Introduce Crypto Products?
By Nironjan Roy, CPA, CMA — Certified Anti-money laundering Specialist and Banker
Since the beginning, banks have always tried to stay away from cryptocurrency. As the crypto market was gaining popularity, banks had been trying to keep those digital assets from entering the formal financial market. There was a kind of rivalry between crypto companies and banks, as the former sought to enter the financial market, while the latter sought to keep them at bay. There was a time when banks allegedly did not allow crypto companies to open accounts for digital assets. But market conditions are evolving in such a way that banks have given up and are preparing to embrace this digital token as a regular product.
As learned from media reports, large U.S. banks have decided to introduce token-based deposits, commonly termed tokenized deposits.
These banks are set to officially launch their tokenized deposit program next year, in an attempt to remain competitive with crypto companies, which are believed to have been penetrating the financial market under President Trump’s crypto-friendly environment. The proposed tokenized deposit program will connect conventional payment systems to the facilities on which digital assets run. Like all other banking payment and settlement systems, this facility will also be operated by a real-time payment network, the Clearing House, collectively owned by all large banks, including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo.
Local news reports state that this new facility would allow tokenized deposits to move instantly across blockchain technology with round-the-clock settlement. The bank’s new move is simply entering the crypto world by introducing a bitcoin- or stablecoin-type tokenized deposit, which is viewed as a very positive move on the banking side. The head of Clearing House in the USA has already termed the banks’ move to introduce tokenized deposits a significant step for the banks.
As reported by the media, the Banks that have almost finalized the tokenized deposit network have decided to officially launch by the first half of 2027, when the facility will be made available across the U.S.A. The underlying blockchain will operate through a partnership with vendors across two specific categories of tokenized deposit networks, one called “the bridge” by some banks and the other “the chain” by others. Banks have been facing a severe competitive threat from crypto companies, particularly stablecoins, which are gaining rapid popularity. If crypto’s popularity continues to rise and becomes widely accepted among Americans, banks fear that enormous deposits might move from banks to crypto companies, posing a serious threat to their liquidity. As reported, banks and crypto companies have been in a tit-for-tat over the recently advanced legislation, which has left room for interest-like structures for stablecoins. Banks in the USA have continuously been frustrated with this rule, which, on the other hand, has made crypto companies very happy.
Initially, it is expected that banks’ tokenized deposits may attract many corporate houses and large multinational companies, which may channel their sizable funds through this digital asset; potential uses include programmable treasury operations, real-time liquidity management, and cross-border payments. The banks have undertaken this tokenized deposit program at a time when tokenization of traditional assets, viz., stocks, bonds, and funds, as digital tokens on blockchain has been gaining momentum in the financial market. Major exchanges are preparing to launch their tokenized securities. So, banks have no choice but to roll out tokenized money-market funds to maintain a competitive edge.
Banks have decided to adopt tokenized deposits over stablecoins because they are simply traditional bank deposits represented as digital tokens on the blockchain. In fact, tokenized deposits bear the same credit risk, regulatory compliance, and accounting treatments, making it easier for banks to offer blockchain-based payments within an existing regulatory framework. It is true that banks’ customers have not yet started demanding crypto products, but the days are not far off when there will be strong demand for them. So, early preparation will keep the banks in an advantageous situation. One renowned banker from a large U.S. bank has rightly commented, “clients are not necessarily beating down the doors for tokenized deposits, but that there has been some interest and that a new network would ensure banks are well-positioned”.
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As reported in the media, JPMorgan Chase, the largest bank in the U.S.A., has already introduced its own internal tokenized deposit, JPM Coin, which is used to settle payments on its private blockchain. More recently, the bank has launched a deposit token, JPM Coin, on Base, a public blockchain affiliated with crypto exchange Coinbase Global, but this service is limited to institutional clients. It is also learned that banks could issue stablecoins if there is enough demand, but some bank executives have raised questions about what the use cases for stablecoins could be beyond cross-border payments.
Given the way the situation is evolving, banks launching crypto products is a matter of time. Not only banks but also all other market players in the financial industry will eventually accept cryptocurrency as part of their regular offerings. When banks in the USA officially launch this product, other parts of the world, particularly the developed world, may follow.
However, a problem may arise when a compliance issue arises during a cryptocurrency transaction. Because compliance standards are very stringent in banking practice, they may not be as strict in crypto companies. If standardized compliance cannot be ensured across the industry, irrespective of banks, non-banks, and even crypto companies, the success so far made in preventing money laundering and terrorist financing may be impacted. Industry leaders will definitely take this issue into consideration when making the final decision to launch a crypto product in the banking sector. Contact: Nironjan Roy, CPA, CMA, CAMSCertified Anti-Money Laundering Specialist and BankerToronto, CanadaEmail: nironjankumar_roy@yahoo.com
Given the way the situation is evolving, banks launching crypto products is a matter of time. Not only banks but also all other market players in the financial industry will eventually accept cryptocurrency as part of their regular offerings. When banks in the USA officially launch this product, other parts of the world, particularly the developed world, may follow.
However, a problem may arise when a compliance issue arises during a cryptocurrency transaction. Because compliance standards are very stringent in banking practice, they may not be as strict in crypto companies. If standardized compliance cannot be ensured across the industry, irrespective of banks, non-banks, and even crypto companies, the success so far made in preventing money laundering and terrorist financing may be impacted. Industry leaders will definitely take this issue into consideration when making the final decision to launch a crypto product in the banking sector. Contact: Nironjan Roy, CPA, CMA, CAMSCertified Anti-Money Laundering Specialist and BankerToronto, CanadaEmail: nironjankumar_roy@yahoo.com