An obscure accounting rule seems to be a surprising stumbling block for the major US banks wishing to hold Bitcoin and other cryptocurrencies. According to Matt Walsh from Castle Island Ventures, this under-the-radar regulation, Staff Accounting Bulletin No. 121 (SAB 121), has been active since March 31, 2022, and is the mechanism by which the US Securities and Exchange Commission (SEC) is impeding banks.
Walsh drew particular attention to Gary Gensler, the Chair of the SEC, claiming that he’s leveraging SAB 121 to transform the SEC into a merit regulator, and keeping major banks from dabbling with cryptocurrencies in the United States through this little-known rule.
The contentious detail of SAB 121 is how it forces banks providing Bitcoin custody services to treat the client’s Bitcoins as their own assets. This implies having more U.S. dollars as a capital charge against the asset – an approach at odds with typical custodian duties. As Walsh pointed out, this accounting style is in direct contradiction with how other assets are treated, claiming it to be nonsensical.
The backlash against this regulatory ruling is growing, not only from within the cryptocurrency domain but also in government circles. Players like Bank of New York Mellon have publically expressed their frustration, claiming SAB 121 makes their crypto business untenable. Among the political dissenters are Senator Cynthia Lummis and Congressman Patrick McHenry, who have come out in defense of banks and credit unions, and even SEC Commissioner Hester Peirce.
More alarmingly, Walsh speculates that the obscure rule aligns perfectly with the objectives of influential voices like Elizabeth Warren, who has made a name advocating for stricter rules in the digital asset industry. Her influence looms large over the SEC’s recent position, raising questions regarding the power of unelected officials like Gensler in shaping Bitcoin and crypto policy in the US.