Kraken Launches America's First Crypto Bank

The Wyoming Banking Board recently granted Kraken a Special Purpose Depository Institution (SPDI) license. Kraken Financial will be the first newly chartered bank in the state in over a decade.

Kraken Launches America's First Crypto Bank

Kraken Financial's newly appointed CEO David Kinitsky said in a statement that "By becoming a bank [Kraken gets] direct access to federal payments infrastructure, and [it] can more seamlessly integrate banking and funding options for customers." Kinitsky's track record includes prominent roles at Grayscale Investments, Fidelity, and Circle.

The announcement comes two months after the Office of the Comptroller of the Currency (OCC) gave regulated banks the green light to provide custody services to cryptocurrency startups. The agency issued a public letter in July, stating that it "recognizes that, as the financial markets become increasingly technological, there will likely be increasing need for banks and other service providers to leverage new technology and innovative ways to provide traditional services on behalf of customers."

Now the Comptroller's banking division is working with Promontory Financial to develop a manual for banks interested in operating in the cryptocurrency space. The document, which will offer policies and procedures for managing digital assets, is scheduled for publication this month.

A pioneering experience in traditional banking holds many advantages for Kraken. According to Kinitsky, it will allow the exchange to operate in new jurisdictions. By becoming a state-chartered bank, Kraken has acquired a kind of "regulatory passport" to operate in other states without having to deal with the specific regulatory framework of each jurisdiction.

Kinitsky told reporters that Kraken Financial plans to expand its offerings beyond traditional banking services. "We would expect to offer a host of new products as we get established," he said. "Those will range from things like qualified custody for institutions, digital-asset debit cards, and savings accounts all the way to new types of asset classes. We can engage with securities and commodities and things like that as a bank."

Because SPDIs cannot offer loans, Kraken's business model will rely on fees and services. SPDI applications require that each bank maintain a reserve amounting to 100 percent of its assets. Kraken officials said that "If every client were to demand withdrawals of their fiat at the same moment, Kraken Financial would be able to fulfill each withdrawal immediately without regard to how many loans we had outstanding."

Another central aspect of SPDI banks is that they can hold cryptocurrency and related digital assets but will never have legal ownership over them. In case of bankruptcy, the assets will be returned to customers.

Kraken said in a press release that Kraken Financial "will be the first regulated, U.S. bank to provide comprehensive deposit-taking, custody, and fiduciary services for digital assets." First, but surely not last, as several crypto companies are currently awaiting approval of their applications to become SPDI banks.

The crypto trading platform has big plans for the future, which go well beyond Wyoming. Kraken's press release said operations will start locally but will soon expand globally. The company expects the new banking operation "will also help the broader Kraken organization to service companies around the world." In a few years, Kraken Financial plans to offer trust accounts, staking, and a variety of mobile/online banking services.

Founded in 2011, Kraken is no stranger to international banking operations. Since 2013, the San Francisco-headquartered company has been partnering with a German bank to offer cryptocurrency trading services in Europe.

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