The US Federal Reserve and other regulators told bankers that they need to maintain the same amount of capital to back tokenized securities as they do regulator securities.
“The technologies used to issue and trade in a security generally do not affect its capital treatment,” according to the agencies, which also include the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The three sent a new frequently asked questions document Thursday to the banks they regulate.
The legal rights of owners of securities are intended to be the same regardless of how the securities trade, and regulators say the capital must also be the same. The assets themselves can also be used as financial collateral in the same way that securities, the agencies clarified, are “subject to the same haircuts that apply to the non-tokenized form of the security.”
Banks and other financial companies are required by their regulators to maintain capital as a cushion against financial distress by setting aside certain levels of liquid assets in order to protect themselves and their customers. Setting the same standard for both forms of security ownership means that the crypto-linked assets will not be treated more strictly.
The same capital treatment also applies whether tokens are issued on permissioned or permissionless blockchains, the regulators said, and the technology-neutral approach also applies to the capital tied to derivatives that refer to tokenized securities.
Securities tokenization is a growing segment of crypto activity where such assets as stocks, bonds, and real estate can be represented in a token issued on a blockchain. The US Securities and Exchange Commission is also working on policies to govern how tokens are handled.
Capital requirements represent a key compliance requirement in banking, and clarity on such aspects of crypto-capital further encourages assets to merge with US banks. Although US banking watchdogs were hesitant to embrace crypto and blockchain technology in recent years, the up-and-coming leaders appointed under President Donald Trump’s administration last year have made it a point to champion pro-crypto movements.
Read more: Market infrastructure firms warn tokenized securities face higher costs, split liquidity without interoperability
