The Texas Department of Banking has released a notice affirming that state-chartered banks can offer bitcoin custody solutions to customers, so long as the bank has specific protocols in place to manage risk and comply with the law. The authority to provide these services already existed under the Texas Finance Code.
The notice states that banks can choose the specific custody and storage solutions they want to offer their customers depending on what best fits the bank's expertise, risk appetite and business model. When it comes to custody solutions, the notice mentions two example scenarios.
"For instance, the bank may choose to allow the customer to retain direct control over their own virtual currency and merely store copies of the customer's private keys associated with that virtual currency," the notice affirms. "Alternatively, the bank may cause the customer to transfer their virtual currency directly to the control of the bank, creating new private keys that are then held by the bank on behalf of the customer."
In both scenarios, however, the customer would not be in control of their funds. In the first example, while the customer would know what the private keys that spend their funds are, a copy of their keys would be possessed by the bank –– theoretically being able to spend the funds without the customer's consent. And in the second case, the customer would not even know which private keys control their funds.
Furthermore, the notice mentions that a state-chartered bank that seeks to provide these bitcoin custody services can do so in either a fiduciary or non-fiduciary capacity. In the former ability, the bank would have the authority to manage the customer's bitcoin like any other asset held in such power. And in a non-fiduciary capacity, the bank would act as a bailee and take possession of the customer's bitcoin –– who would then receive a legal title for those funds.
Although it may seem natural that customers would lose sovereignty over their funds when choosing to delegate part of their bitcoin custody responsibilities to third parties such as state-chartered banks, it does not need to be the case. With multisignature custody, for instance, banks could hold the setup's minority of private keys for backup or increased security purposes only, preventing it from spending any customer funds at all. In this case, the bank would be providing a valuable service to the customer, while the latter would still be completely sovereign over their bitcoin.