Transcript:
Penny Crosman (00:03):
Welcome to the American Banker Podcast. I'm Penny Crosman. Things are moving quickly in the world of digital assets and mainstream finance. Crypto companies are receiving national trust bank charters. The Fed has floated the idea of giving crypto companies access to Fed payment rails in the form of a "skinny" master account. And traditional banks are getting more interested in offering crypto custody, digital wallets, stablecoins, and other related products. Here with us to unpack some of the latest developments is Rachel Anderika, chief operating officer of Anchorage Digital Bank. Before joining Anchorage, Rachel was a bank examiner at the OCC for 10 years, and she was a consultant at Promontory. Welcome Rachel.
Rachel Anderika (00:47):
Hi, Penny. Great to be here.
Penny Crosman (00:48):
Thanks for coming. So Anchorage Digital Bank has made several announcements in recent months. It launched a white-label stablecoin issuing service that I believe Western Union has just signed up to use. It has initiatives with BlackRock. It's signed up U.S. Bank to do reserve custody for the stablecoin platform. To your mind, what are some of the most significant new developments?
Rachel Anderika (01:17):
Yeah, so it's a great question because there's a lot happening and what I'll say is this, we got our bank charter in January of 2021, and over the last five years we've really built a whole lot of infrastructure. And that infrastructure was in part to meet regulatory standards and we have to meet very high regulatory standards being an OCC chartered trust bank. But really when we built what we built, we did it with the institutions in mind and to be able to be an infrastructure provider, a service provider, a counterparty to these very large and sophisticated financial institutions. And so I think that what you're seeing now is the unfolding of the space and luckily we've been able to build in advance to meet the opportunity that comes. A couple of weeks ago was Anchorage formally launched its white label stable coin issuance partner product.
(02:16):
And essentially what that is, is we are issuing stablecoins for partners under our bank charter, and it's really built to be compliant with the GENIUS Act when that comes into existence. So worked really hard on that, had very long conversations with issuing partners who really want to leverage what we've built over a period of years to ensure that not only are they compliant with the GENIUS Act when that is the law of the land, but also that they're able to just serve their constituency in a safe and sound manner. So what you heard is we actually issued a stable Athena, and that happened a couple of weeks ago. We were able to successfully onshore a previously offshore stablecoin onto our platform. So we're really proud of that and we really had a lot of learnings about how to transfer a stablecoin from somebody else. And what you heard this week at Money 2020 was that Western Union has chosen Anchorage Digital Bank as their issuing partner for a coin to be issued in 2026. So really exciting stuff and everything kind of surrounding the rollout of the stablecoin white-label product.
Penny Crosman (03:41):
So you mentioned that Anchorage Digital Bank was really the first crypto bank to receive a national trust charter. What has that done for you? I mean, would you say all the things you just listed would not have been possible without this charter?
Rachel Anderika (03:55):
I firmly believe that there was a time where we thought it was more of a bug than a feature, and we definitely questioned our own sanity. But because I always say in the midst of everybody in crypto really wanting regulatory clarity, what I always got to say is, well, my regulations are very clear. They're not easy, but it certainly is clear. And so what that required us to do was really build the compliance and capabilities that are commensurate with the institutions that we want to serve. And so when you think about that from a BSA/AML compliance standpoint, that's true. When you think of that from an information security standpoint, that's true. And so our ability to partner with these institutions is really because we've had to meet the same regulatory requirements that they themselves have had. So all that we've had to build over the past five years kind of set us up to be able to be ready for when the banks and the asset managers needed to do, the due diligence that they had to do.
(05:08):
So from that standpoint, I think it was certainly a feature, although it didn't feel that way at the time. I would also say that the beauty of a national charter and our stablecoin issuance platform is built right now. It's meant to be GENIUS compliant, but it's really done under a whole bunch of existing authorities with the interpretive letters that were put out in 2020. And so what we ended up doing was taking a look at those interpretive letters, seeing what it is that we could do, and then anticipating what the requirements would be with GENIUS. And our stablecoin issuance platform was then able to be built with relative clarity as to what we think the regulations are going to look like when rules are written.
Penny Crosman (05:53):
So we've seen recently several crypto companies applying for this national trust charter from the OCC as well. The latest was Crypto.com, which applied for one last week. We've seen Ripple, Circle, Coinbase, Paxos and Bridge, which is a Stripe-owned stablecoin infrastructure provider, all apply for these charters. Why do you think we're seeing so many of these right now? Are they all trying to copy you with some of the things you're doing?
Rachel Anderika (06:21):
Well, I hope so. Imitation is the sincerest form of flattery for sure. I mean, I would say yes, probably. I would also say that what the charter does, particularly with the GENIUS Act, there's a much clearer path from an issuance standpoint. So if you're going to want to issue a stable coin after the 10 billion cap, really the national charter is the avenue that you're going to want to pursue. And so what I imagine is that these companies are kind of taking a look at where they want to play in the issuance space, whether they themselves want to be an issuer, et cetera, and they're looking at the powers that a national charter provides for them. And that's all of a sudden the value versus the difficulty in obtaining it evens out a little bit more. And so I think that that's why you're seeing a path.
(07:14):
The other thing is that our consent order was lifted in August after a very long time of really trying to prove that the asset class could exist within the regulatory perimeter. And I have to believe that that was a bit of a signal that says, okay, right there has been a path that's forged this asset class can exist within the regulatory perimeter subject to laws, rules and regulations applicable to every other national bank. So I mean, I hope that we're a little bit of an example of how it can be done. And I'm sure that the way in which other applicants are going to maintain the same level of compliance might differ and that the agency will have to exercise their muscles and figuring all that out. But I think that we proof that it can be done. It's not easy, but it can be done.
Penny Crosman (08:08):
Yeah. Do you think the OCC is likely to approve these quickly?
Rachel Anderika (08:12):
So what I think is, and I was really encouraged to see the conditional approval of Erebor. There was a lot written about that. But when I take a look at what I expect from the agency and what they've published about how charters are supposed to be processed, what I see is a return to what the intent of the agency was supposed to have. So if you look at the chartering handbook, it's pretty clear that says 120 days from the date of application a bank, an applicant will be granted a conditional approval. And we see that conditional approval being granted. So that's the timeframe that's set out. And I think that that's great because it gives an entrepreneur, it gives organizers some certainty as to what they can do next, and then they can get that conditional approval and that can raise the capital that they need.
(09:04):
They can hire additional teams that they need because now that they know what's coming next. And so what's going to happen at that point is the whole regulatory process of, alright, I'm in a period where I'm organizing my bank, I'm building the tech that I need, I'm getting the talent in place, I'm raising the capital. So all the things that you need to do in order to open and what typically happens, and we'll see what timeframes look like. It's about a year, 18 months for folks to actually get all that stuff done, maybe shorter, and then they will have a pre-opening exam and the OCC will give them the green light to open and begin operating. And so what I'm hoping to see is institutions go through that process of obtaining the charter, obtaining the conditional approval, building what they need to, and then just having it work through the process as it should.
Penny Crosman (09:59):
It feels accelerated. I remember when Varo tried to get applied for a national bank charter and it took three years and I believe it was a hundred million dollars that they spent. Now a full bank charter is not quite the same, but still it feels like there's been an acceleration of approving these kinds of applications. Do you have any advice for crypto companies or fintechs that are applying for a charter like this?
Rachel Anderika (10:28):
Yeah, so first I want to comment on the acceleration. I think that whenever you have a full-service bank, you're going to have, and if they have a holding company, they're going to have to go through three different regulators if they're an OCC chartered institution. So it does take some time to go through the OCC process, the FDIC process and the fed process and getting the master account in place, et cetera. So there's a lot of that coordination that has to happen. And what we've seen is an indication probably from every agency of an openness to make sure that we have a predictable process so that organizers can come in, that innovators can come in and go through that and be able to have their fair shake.
(11:18):
I guess the advice that I would offer is this, I think it's really important, number one, to have people who are used to going through the process. I mean good advisors, good legal team is really important, but people who are internal, I always have said I very often prefer a patriot over a mercenary because it's a long haul, it's not a sprint. And so I would say pick a bunch of patriots, hopefully they have patriot friends and hire the talent in because going through the licensing process is one thing, but then you have to operate. And so really a lot of the stuff gels in the first year after chartering. And so that would be my big advice.
Penny Crosman (12:11):
So you mentioned stablecoins a few times, including the stablecoin that Anchorage has issued. What do you see as the top use cases for stablecoins? A lot of people talk about cross-border payments. Is that going to be the main thing or do you see a lot of uses for them?
Rachel Anderika (12:29):
So that's a really good question. I was on a panel last week, I think you saw it, and we talked about stablecoin use cases. Everyone's talking about stablecoin use cases and people are saying, oh, well it'll revolutionize payments and domestic payments are pretty good already. And so there's going to be only so much improvement that you're going to see from the payment system that we have in place today. And there probably will be marginal amounts of improvement. So I think that you're going to see that. I think that you're going to really see when it comes to international types of payments and where there actually is friction in today's system like remittances or any kind of international payments using swift, you're going to see probably the ability for stablecoin use cases to proliferate stable coin use cases will proliferate where you see operational friction and cost being able to be cut out of it.
(13:31):
So I think that that's what we're saying. And last week on the panel, Debo from Citi rightly talked about some of the use cases that they're seeing in trade. And so I think that banks are going to be finding use cases now that they have the ability to really experiment and think through what it is that they can do, and they have some certainty for how they're going to innovate. They can think backwards in terms of what does the client want? Where am I seeing cost able to be taken out either for me or for my client? And then I can start to be able to think about what are the resources that I'm going to devote to figuring out the tech and the partnerships and all the integrations that I need.
Penny Crosman (14:17):
So I wanted to ask you about the skinny master account that the Federal Reserve recently. It's a concept that Christopher Waller recently floated that would give companies like Anchorage the ability to tap into the Fed's payment rails, but in a limited way. I mean without getting access to the fed discount window and without being able to go negative on accounts and a few things like that. And also the approval process would be much faster compared to what it's been in the past. What do you think of this overall concept?
Rachel Anderika (14:57):
Sure. And I'm going to preface this by saying my thoughts are evolving and I'm going to be really excited to see what comes out of any documented proposal or notice that goes out or whatever the next part of the process is. First of all, I love the name, I love skinny master account. I think that that's a wonderful way to describe it. And it's interesting that you said like Anchorage does have a master account application outstanding. So we are a tier three institution under the 2022 guidelines, which essentially means that we are an uninsured trust bank and we don't have Fed oversight vis-a-vis with a holding company. So we're one of the tier threes. And that whole framework was rolled out because the decision for a master account access really rests with the applicable reserve bank. And so there's 12 of them. And that tier, that tiered guidance was put out there to kind of normalize and set out expectations around, okay, what are the things that we're going to consider and who are we going to consider?
(16:11):
But the baseline is always legal eligibility under 19B of the Federal Reserve Act. So what we're talking about here is it has to have legal permissibility. So you're already only talking about an uninsured trust bank, a depository institution. So they already need Fed master account access anyway because they're involved in fractional reserve banking. And so the pool is small. And the tier threes, since that guidance came out, there's only been one tier three approval that I can think of. And that was really only recently. And so what this does is it kind of puts a framework that says, okay, we now are signaling that there are institutions that have very legitimate use cases for only access to the payment rails and that we can separate the concept of a payments use case or payments as a commoditized product and credit creation with regard to fractional reserve banking.
(17:19):
And that those are two different types of things that the Fed is going to support and they're disaggregated and they in fact are disaggregated. I think that it's a really great signal to the market that the Fed is really understanding where the market is and wants to bring that into the regulatory perimeter in a very, very real way and have a framework for consideration around that. And I think that that's brilliant. Some of the drawbacks to it are, and probably talked about a bit, there's no interest. And so if you are actually parking a lot of money somewhere, you are going to lose out on any kind of interest payment that you would with some kind of a correspondent bank. And I think that that's probably a feature and not a bug. It precludes real use case for any kind of stable point reserve because you want to have interest payments on those, but it eliminates the counterparty risk that you would get with the correspondent bank. So I think that there's real pros and real cons for an institution, an eligible institution who would want to go through the process.
Penny Crosman (18:27):
So are you going to stick with the original master count application that you already submitted?
Rachel Anderika (18:34):
Well, for now, I mean, we'll see. I don't think that they're anywhere close to kind of teasing out what this actually is going to look like. So we're keeping our ear to the ground, we're keeping our eyes open, we're thinking about it. Anything that we can get done fast would be wonderful. We are subject already to a very high degree of regulatory scrutiny and federal supervision. I probably don't need three federal regulators to get comfortable, our bank sending a wire out. So I love that there's this other path to be able to achieve what we want to, which is really the ability to access the payment rails.
Penny Crosman (19:15):
Alright, so last question. I was just thinking about how your company is growing quickly and you've been rolling out lots of new things, lots of new partnerships, new stablecoin, new initiatives and so forth. How are you keeping up as a company with all these new relationships and products and rollouts? Are you hiring quickly or what's happening internally at Anchorage to enable all this to happen?
Rachel Anderika (19:44):
Oh, it's a great question. So I wish that your readership was a bunch of engineers because we are hiring like mad from an engineering standpoint. There is a lot to build. We built a lot in the, you build during the bear, but you also build during the bowl. And so here we are. We're absolutely staffing up. We're growing. We have a really amazing sales team. We have a wonderful compliance team. So a core principle here at Anchorage is that we do not grow past our ability to manage. And so I think that we've built in a lot of capacity into our model already, so we feel really good there. But yeah, so if you know any good engineers, send them my way.
Penny Crosman (20:30):
Great. Well, hopefully they're listening and you'll get a few your way. Well, Rachel Anderika, thanks so much for joining us today and for all of you, thank you for listening to the American Banker Podcast. I produced this episode with audio production by Wenwyst Jeanmary. Special thanks this week to Rachel Anderika at Anchorage Digital Bank. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. For American Banker, I'm Penny Crosman and thanks for listening.