SPDI: Special Purpose Depository Institution Bank Charter

SPDI Bank Charter Explained

Cryptocurrencies, normally stored in wallets and apps, can now find refuge in brick and mortar banks thanks to the creation of digital charters for financial institutions in Wyoming.

The cowboy state began approving digital banks late in 2020 under its Special Purpose Depository Institution Bank Charter (SPDI), a framework that is attracting growing interest from cryptocurrency concerns and investors.

The SPDI allows approved banks to house digital currencies alongside fiat currencies under the Wyoming law. These new banks offer a range of banking services to their customers, linking the chasm between cryptocurrencies and cash.

SPDI banks in Wyoming must hold reserves backing 100 percent of the cryptocurrencies on deposit. So if a client seeks to withdraw funds, the bank will have the assets on hand to cover the request.

Kraken, which operates a cryptocurrency exchange, was the first digital asset company to receive the SPDI charter in Wyoming. Called Kraken Bank, it will be the first regulated American bank to provide comprehensive deposit-taking custody and fiduciary services for digital assets. Kraken will headquarter the bank in Cheyenne, Wyoming, with a permanent physical presence and required staff.

spdi bank charter

What is a bank charter?

Traditionally, a chartered bank in the U.S. is a government-approved financial institution charged with safeguarding funds deposited by people and organizations. The Office of the Comptroller of the Currency (OCC) oversees chartered banks, along with federal savings associations, and agencies of foreign banks. The office may approve or deny applications for the establishment of national banks and savings associations.

Banks today offer monetary services necessary for growth in today’s economy, such as interest on savings deposits, and maintain federally mandated reserves used to process daily transactions for their customers. Banks typically lend out a portion of their depository assets to individuals and to commercial borrowers.

A bank charter is like a roadmap on how the bank will operate and comply with its regulatory framework, such as capital requirements. U.S. bank charters are issued at the state or federal level.

Why SPDI Crypto Bank Charters?

Wyoming’s digital charter under the SPDI is a unique type of framework for housing financial assets when compared to traditional banks, an initiative that has captured the attention of a range of companies in the crypto space.

Kraken’s vision is to become the world’s most trusted bridge between the crypto economy of the future and today’s existing financial system. With the Wyoming charter, Kraken hopes to help clients reduce reliance on third-party financial institutions.

Kraken Bank will offer a suite of products for its customers. They will begin locally but will reach out across the United States, and, eventually, the world. Initially, only U.S. citizens may open accounts at this bank.

Kraken Bank’s planned portfolio includes enhanced digital asset custody products, digital asset staking, trust accounts, online and mobile offerings, debit cards, and other services for corporate clients.

What does this mean for Kraken exchange clients? New and existing clients will apply for an account at the bank and use these assets to fund accounts seamlessly on the exchange for future trading.

Wyoming was the first to offer a bank charter that outlines exactly how regulatory authorities will supervise digital assets. The state’s move to kick-start crypto banking in the US is reminiscent of when South Dakota removed its interest rate cap on loans, a move that opened the door to credit card banks.

Digital banking is on the rise globally as well. Switzerland, well known for its highly developed banking sector, began offering licences for crypto banking in 2020, in yet another sign of the transformational nature of blockchain architecture.

SPDI Charter: Secure, Less Complicated?

Digital banks provide support for digital assets, making them easier and safer to use, and allow consumers to track their cryptocurrencies, cash, and other securities in one individualized account.

The unified approach offers increased protection for the consumer by shrinking the number of counterparty and intermediary risks, and removes the potential of losing cryptocurrencies due to a host of user errors that occur when self-custodying.

Finally, the SPDI architecture could also encourage other large institutions, such as pension funds, to enter the cryptocurrency market if they see a strong regulatory and security framework underpinning their investments.