Pub. 9 2014-2015 Issue 1

May | June 2014 11 Extraordinary Service for Extraordinary Members. C a p i t a l M a r k e t s G r o u p Since 1985, we’ve delivered the financial ServiceS community banks need. But only after establishing what they really want: a solidworking relationshipwith professionals who put people first. call us to get started. • Portfolio Strategy, Sales and Service • Bond and Securities Underwriting/trading • comprehensive alM and derivatives consulting • BancPath® and flexloan® via asset Management Group Bitcoin transactions are also same-day transactions (usually confirmed within minutes). U.S. banks have thus far been slow to increase payment speed to this level (although the wire system is obvi- ously available for a price). Banks may be nudged to be faster by the Federal Reserve System. 12 Bitcoin transactions also may have some data breach ad- vantages inasmuch as they do not con- tain identifying personal information, something that has obviously become an increasingly important issue for banks and merchants. 2. Bank customers may have bitcoins. Banks’ customers may hold bitcoins or other virtual currencies as either a store of value for making payments or as an investment. The total value of bitcoins currently in worldwide circulation is in the neighborhood of $6 billion (at their current valuation). Therefore, a low like- lihood exists that any particular bank (especially a community bank) will soon find it necessary to deal with a deluge of customers with significant Bitcoin wealth. A banker could nonetheless occasionally find it necessary to have a basic understanding of virtual currency in order to evaluate a customer’s claimed wealth or money-laundering risks. Re- quests to use bitcoins as collateral also could present significant issues, not the least of which would be perfection, con- trol, and valuation. In the coming years, will banks need to have an established response for customers who want to pay the bank in Bitcoins or who want the bank to act as a custodian or trustee for the customer’s bitcoin holdings? 3. Potential new commercial customers may be running a Bitcoin business. The irony of Bitcoin businesses (like exchanges) needing bank accounts is probably not terribly amusing to those businesses that currently find it difficult to locate a bank that will take their busi- ness. 13 FinCEN’s guidance on virtual currency businesses reportedly did not helpmuch in this regard (even though it indicated that mere users of virtual cur- rencies were not money services busi- nesses) 14 nor did the FDIC’s guidance on exercising care when dealing with pay- ment processors. 15 Like the businesses themselves, bankers may find it difficult and unprofitable to evaluate a business that presents money laundering, money services business, money transmitter, and risky business diligence questions, not to mention the normal difficulties associated with on-boarding a new cus- tomer that has a start-up business de- pendent on a relatively new technology. 4. Bitcoin or a succeeding tech- nology may present business opportunities for banks. Bitcoin entrepreneurs of course believe that banks are either squandering the Bitcoin opportunity or jumping on the bandwagon, or that Bitcoin will be part of the new global banking order. 16 While these beliefs may be open to question, some reports indicate that big banks are already at least evaluating the Bit- coin phenomenon and perhaps even evaluating the technology as a potential business opportunity for themselves. Bank of America was reported to have  COUNSELOR’S CORNER — continued on page 12