A hard grilling over $1,300

The FDIC had some hard follow-up questions for an unidentified American bank... over $1,300 worth of digital asset holdings.

Why it matters: The interaction suggests there was no level of cryptocurrency product offered by a bank in recent years that wouldn't draw a lot of sharp questions from bank regulators.

What's happening: Coinbase got a raft of 25 FDIC letters to banks released with somewhat less redaction (there's still a lot), and it published them Friday as a court filing.

• In April 2022, the agency asked its bank supervisees to let it know about all crypto-related activities.

Zoom in: In one letter, labeled Document 22, it seems like all one bank did was make trades in various crypto assets, from tokens to NFTs.

• Because of the redactions, it's hard to tell exactly what happened. But it seems like the bank might have put as much as $98,900 to work in crypto markets at some point. (That doesn't sound like much for a bank).
• At the point the FDIC followed up with multiple detailed questions, it seems like the bank was holding just $1,300 in crypto assets with a custodian.
• In a worst-case scenario, this could mean that the bank lost over $90,000 through trades. It could also mean that that's all the bank kept in the end, after selling the rest.

💭 Our thought bubble: Either way, it seems like much ado about very little, but perhaps that was the point.

• What we can't see from these letters, though, is whether or not the bank in Document 22 had the OK (that is, a "supervisor non-objection") from its regulator, as detailed in this Office of the Comptroller of the Currency memo.

The big picture: The recurring theme throughout the FDIC's so-called "pause letters" appears to be banks that simply wanted to let customers buy and sell bitcoins (some of them seem like they might have wanted to offer more).

• Axios counted 12 letters that seemed to just be about offering roughly the same services that Cash App and PayPal offer now. One of them seemed to want to get a little more complex.

• Several appeared to want to offer settlement services to their users on a blockchain. One wanted to make a stablecoin.

Yes, but: It appears that one bank in this mix wanted to offer crypto-based lending, such as lending cash against crypto deposits.

• That is a business line that got a lot of other companies in serious trouble. (Though not all. For example: Ledn, Unchained Capital and the Defi lenders).

The other side: One job the FDIC has to be careful about is clarifying which activities of a bank are FDIC-insured and which ones aren't.

• Offering trading services to customers might have been seen as a risk, in that light.
• See the FDIC's instructions to its staff in the field in this June 2022 memo.

The bottom line: This explains why several banks announced they were offering bitcoin and such to customers in 2021 and 2022, and then we never heard anything about those offerings again.