Artisan Unfiltered #6: How will the recent cryptocurrency crisis affect its future in banking?

An unfiltered discussion about the recent cryptocurrency crisis and the future of crypto in community banking. Featuring Jim Adkins, Tommy Fitzgibbon, and special guests from local community banks.

Transcript

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[00:00:20] Jim Adkins: Welcome to Artisan Unfiltered. I am Jim Adkins, managing partner of Artisan Advisors. Today we will be discussing the current events in cryptocurrency and how these events might affect the future of cryptocurrency in the banking industry. Joining me today are Ryan Kamphuis, president and CEO of Bristol Morgan Bank, which has offices in Central Wisconsin.

Also, with this today is Eric Bush, chief Accounting Officer at Evergreen. Which is headquartered in Oakbrook, Illinois. And finally we have Tommy Fitzgibbon who heads up Artisan's compliance practice. Tommy enjoys the nationwide reputation as an expert in banking compliance, BSA and cra. Thank you gentlemen for joining Artisan Unfiltered

[00:00:59] Eric Bush: Thank you.[00:01:00] 

[00:01:00] Ryan Kamphuis: Thanks for having me.

[00:01:01] Jim Adkins: you're, it's, I'm glad you guys are here. Well, let's talk about it. I mean, Heck, uh, what are the ramifications of this FTX debacle? Let's just jump into it both, both from a short term and long term perspective as it relates to mainstream adoption into commercial banking. What do you guys think?

[00:01:22] Ryan Kamphuis: I think alt coins, so anything that isn't particularly Bitcoin is gone, that's, it's gonna be dead. Uh, And it should be cuz those things aren't worth anything anyways, they're all, whatever, some, you know, be like me selling, putting, growing green beans in my garden and saying they're worth more, you know, because I sold them to you.

[00:01:43] Eric Bush: Mm-hmm.

[00:01:44] Jim Adkins: You're not a big, a big fan of value proposition on that one. I can tell.

[00:01:50] Ryan Kamphuis: Not on those. Not on those, that's for

[00:01:52] Jim Adkins: Yeah. Tommy,

[00:01:53] Tommy Fitzgibbon: Well, I think there's gonna be a shock throughout the system for those who've invested in, um, various cryptocurrency because [00:02:00] in essence, this fdx debacle was an exchange where, and again, it gets back to the fundamentals. It where, um, the, the cash, if you call it cash, was diverted away from, uh, the people who, um, had placed their, um, their cryptocurrency, uh, on the exchange, uh, and are hoping to use it at some time or hoping there would go up, who knows?

But it's gone and there's billions gone. So, you know, I think both from a, a commercial banking perspective, which says, would you ever. Any form of Bitcoin is collateral, uh, is, is, is done. And, um, and you know, the fact that there's no regulatory controls over, uh, how, uh, bitcoins or how cryptocurrency is, uh, um, uh, traded, um, and, and is held, uh, is uh, going to be a point of [00:03:00] conjecture if it ever, um, recovers from this, uh, real problem.

[00:03:06] Jim Adkins: Eric, what are your thoughts on.

[00:03:09] Eric Bush: Well, I, I, I think in the short term, it's gonna be definitely very messy situation, right? They're gonna have to figure out what the heck happened. How, how does billions of dollars just kind of go? Go missing? Um, how do you not unlock it? Um, longer term? I, I think it's just going to increase the need for some sort of regulator to really step up and, and regulate this.

Whether it's the F D I C O C S E C, some regulator is going to have to, uh, step in here and, and really quick, and I dunno if it's Congress, um, is gonna have to act as well, um, because. FTX was the third largest if, if I heard correctly, um, uh, exchange. So that means, you know, do the math, number one and number two are still out there.

And, and if this one is in the [00:04:00] billions, number one and number two are in the billions as well. So, um, There's still billions of dollars out there in, in exchanges going on. So I, I don't see this going away per se. I, I, I think that the, the regulators are gonna definitely got caught off guard, scc, whoever else, and they're gonna have to move very fast, um, to catch up on this.

And it's gonna be a wild ride in the short term until they can figure out who, you know, who is the right regulator for.

[00:04:26] Jim Adkins: Right. And I, I think also, um, you know, you have to separate, first of all, this is, this guy's a crook, right? I mean, you know, this stole money. So you have to separate the fact of the, the crime from the technology, right? I mean, that's hard to do because, Everyone's gonna now assume that cryptocurrency means, you know, someone who's supporting that or trying to do that is a, might be a bad player or a bad actor, but at the end of the day, this is a crime.

And I, I remember back and I think, uh, gosh, was it [00:05:00] whatever the Madoff thing was, I, I remember writing an article. Or a, um, some, some banking situation and just laying out the signs of, of criminality, you know, the, the, the warning signs. And, you know, when you go back, spilled milk is easy to see, right? When you go back and you look at this FTX and you start laying things out, it's like, what?

It's right in front of our face. And it happened again, just like the Madoff thing. You know when when Madoff went down, you looked at stuff and you say, you know, he never produced, uh, financial statements. And he, and a lot of the financial statements he was, he was producing in terms of billings to clients were, you know, they looked like someone did 'em in a kindergarten class.

They were cut and paste and all these little kind of things that are pretty obvious. And I'm sure now you see with ftx, you see the same thing and we're gonna see even more. So, you know, here's a guy that hood. You know, many, many good people and what's unfortunate about it is the technology is going to [00:06:00] suffer for it.

People are going to put ev all cryptocurrency efforts in that same bag for a while and you know, we'll just have to it.

[00:06:08] Ryan Kamphuis: so Jim, two, two points on that. One is, um, it, well, okay, hold on. Three one's a joke though. It's like someone said, you know, what we should do is run a, run a scam better than Bernie Madoff. And they all kind of sat around saying, hold my beer. Um, and, uh, but, but two, you know, so. The first thing is we still have two other large exchanges, right?

And we have other smaller exchanges that are falling by the wayside. Like, you know, block five failed, all that kinda stuff, right? The, and one of the bigger ones when we're talking about Gemini, you know, I I, and again, you have to be careful with Twitter, and I try not to go on Twitter when I'm at work cuz you end up in a Twitter hole, but, 

[00:06:48] Jim Adkins: Right. 

[00:06:49] Ryan Kamphuis: Um, you know, supposedly Gemini's looking to raise a billion dollars.

They need a line of credit because I think their counterparty risk is, is, is has caught up with them now. [00:07:00] And so, and, and that would have a major impact, you know, now we're starting, we're talking institutional type money here now. And so then the, the next piece. Relates to it. It is, it is really interesting.

And it goes to show how a lot of people that have been invest, that are invested in cryptocurrency don't really understand the principle behind it. And it's, it's decentralized, right? So what do you need if, if you're, if you're holding, and I, I can say for myself, I own, I, I hold all mine in, in a cold offline.

Because I don't need anybody to do it. And if I need, I don't need an exchange. And if I do one, I can, I can always send it, you know, wallet to wallet, or I can use an exchange on a one-off case when I need it. And so you have a whole bunch of people. I think that got really caught up in this idea of, you know, it's, it's this exchange.

And it kind of defeats the purpose of what the whole thought behind all these other tokens are. Right. I, I still believe [00:08:00] strongly in the, in the long term value case, the value use case for Bitcoin. I think that there is a real story, a real belief, and a real product there. But the rest of 'em, yeah, it's, it, it just goes to show it's that fear of missing out thing, right?

[00:08:15] Jim Adkins: Uh, yeah, little fomo as my, uh, as the young, as the younger kids would say, a little fomo. Um, you know, I think that, um, um, you know, it, it's, it's. It's an incredible thing. I, like I said, I, I remember Madoff. It doesn't seem that long ago. And here we are, you know, talking about it again, I, I also think that a lot of people, like you said, Ryan, don't understand it.

And when I was, you know, making loans and running loan books and things like that, I had a 25 word rule that if you couldn't explain the deal to me in 25 words or less, you didn't know enough about. And I think most, a lot of people that invest, invest in or invest it in crypto would flunk the 25 word rule.

I mean, they just [00:09:00] dunno about it, but you know,

[00:09:03] Eric Bush: Well, and I think, Jim, I think you just hit it on the head in, in my opinion. When people say they invest in crypto, I, I think that's wrong. I, I, I think you have, you, you've, you've missed the boat right? Then, then and there. It's a currency. It's not an investment. And I think what people thought is, oh, I'm just gonna buy this Bitcoin at 25,000.

It's gonna go up to. 50, it's gonna go up to 80. I think it got up to 80 before it started, you know, crashing back down. And it's not an investment. It is a currency. Um, and, and to Ryan's point, I agree a hundred percent. I think there is a, a, a base case or use case for this. Um, but it's not in any, you should not use the word investment.

You need to use currency and you gotta figure out how it, it's gonna be used.

[00:09:47] Ryan Kamphuis: Yeah,

[00:09:49] Eric Bush: As a currency, you know, how can you go to a grocery store and use, you know, a $26,000 or a $20,000 Bitcoin to buy groceries or go to a movie theater? If you can try to figure that out. I think [00:10:00] that's where the, the base case might. You know, gravitate towards, but it, it's definitely not an investment. I think that's where people got caught up is, I'm just gonna buy this and it's great. I mean, you don't, you can get Bitcoin and you're not gonna get any interest on it. It, it, it's, you know, it's not like a savings account or money market account.

So I, I think that's where the big misconception is, is you know, don't, I, I, I just always cringe when I hear people say, oh, it's an investment. It's, it's not meant to be an

[00:10:28] Jim Adkins: So Eric,

[00:10:29] Ryan Kamphuis: it's much more.

[00:10:30] Jim Adkins: go ahead.

[00:10:31] Ryan Kamphuis: It, it's much more, it's much more of a commodity than anything. It is, it, it's, you know, you're, you're not gonna, you're not gonna trade corn, right? You're, you know, you're not gonna go swap out corn at the grocery store to your example. You know, you need, you need to have a way to convert it to currency.

But I think it's much more along the lines of a commodity than anything

[00:10:50] Tommy Fitzgibbon: I.

[00:10:52] Eric Bush: I, I would agree. That makes sense.

[00:10:53] Jim Adkins: Do you think that, I mean, as far as how the banks play into. To me, the more [00:11:00] sensible way for the banking industry to be in that is on in the currency and the payment side of this. Right. I, I think that might be where the industry can make, uh, you know, it's, it's inroads into the cryptocurrency world. Uh, and like we were talking about, you know, affecting payments, right?

The payment side of things might be the best entry point for, uh, you know, for banking, for the banks in general.

[00:11:28] Ryan Kamphuis: Yeah. Tokenizing transactions is gonna be the be be the way that, that, that we're gonna have a role in,

[00:11:35] Tommy Fitzgibbon: Yeah. As the, as, as the, as the facilitator, but not, not the holder of, um, of any crypto.

[00:11:45] Jim Adkins: right.

[00:11:46] Ryan Kamphuis: No.

[00:11:47] Jim Adkins: I mean that's, you know, you know, the banking system is, you know, we're the facilitator of payments now, right? For the most part. All the, of course, FinTech has eaten into that kind of stuff, but, uh, you know, that's what we're doing now and I would think that might [00:12:00] make more sense to, to push the industry in that way.

Um, here's a question for everybody. Uh, how would you gentlemen like to see crypto regulated in the space? You know, should we have one regulator doing it? Should there be separate charters to do things in the crypto space? Should there be. Capital requirements, all of the above. What's your, what's your regulatory opinion in, in that question?

[00:12:25] Tommy Fitzgibbon: Well, uh, the, the, uh, the subject is crying out for some kind of regulatory oversight, especially on the, on the exchanges. Uh, you know, this guy, um, oh, what is his name now? Uh, Sam Bankman Freed, right? Supposedly diverted capital into some kind of a, a head. And, and so, um, you know, if, if that had been a bank doing that, right, um, they'd go to jail and, and the F D I C would back up, right?

[00:13:00] Because they're supposed to be over overseeing. And, and, uh, uh, in this particular case, it did not. Um, um, you know, there, there weren't any, uh, um, guardrails on this at all. And who knows what the other

[00:13:17] Jim Adkins: In fact, and I, yeah, I mean in, in fact, and I, I'm not gonna, you know, jump into the politics of things, but, you know, he was talking to some of the highest level regulators, you know, and, uh, You know, that doesn't give me a lot of confidence that they could, you know, sniff some of these things out. But, um,

[00:13:41] Ryan Kamphuis: Well,

[00:13:42] Jim Adkins: I.

[00:13:43] Eric Bush: so, so Jim? Yeah, I, I, I think everyone agrees that there needs to be some sort of regulator. I think the interesting thing though is if you know, I, I, I had mentioned earlier in my comments, scc, F D I C, there's the occ. Those are all US based organizations, which is fine, but if you think [00:14:00] about Bitcoin, Bitcoin's international.

Um, so, so whatever the, whoever the regulator is needs to have some sort of international footprint or, or at least collaboration between, you know, Europe, you know, if it's Europe, central Bank and, and the US somehow. And then you gotta get Asia involved. Australia, you gotta really get involved cuz I mean, if you look at right now, I believe, uh, this gentleman, Sam, he, he's in The Bahamas, right?

So, um, you know, and these were bohemian companies that, that FTX was operating under. So, so you get into that, who's the right regulator? Well, it's gotta be someone that has the authority to govern internationally, because Bitcoin is international. I mean, you can, and that's where a lot of the risks lie, right?

You don't know sometimes. On the counterparty who you might be trading a transaction with. It might be in one of those, you know, offa countries that you might, you know, it might be Iran, it could be North Korea, you just don't know sometimes. Um, who, who's, who's on the other side of that transaction. So you look, so from a [00:15:00] regular standpoint, I'd love to say, You know, it's one regulator, but it, it, it's, it's gotta be some regulator that can really talk in a cohesive manner with many different countries on this, which is gonna make it very difficult because, you know, we're, we're all, you know, accountants and things like that, remember, like US Gap versus, you know, IFRS and all the issues that came with that.

And that was just on pretty simple accounting topics that we couldn't agree on. So you, you put a, a digital currency. In there and that that's gonna really add some complexity to how do you regulate it on a global

[00:15:34] Tommy Fitzgibbon: Reserve to step in then.

[00:15:40] Ryan Kamphuis: See, and I, I would say I, I think that there's different pieces of, of, uh, regulatory oversight that needs, that you need to think about. One is the Fed can't oversee because it's not their expertise in exchange, right? That's not them. The, you know, the, the. [00:16:00] S e c or or whoever, they would have to, they would have to provide the oversight for the exchange, the commodity itself.

So say Bitcoin, that would be one that you would kind of see the CFTC doing and, and providing the regulation on that. Because there you at least, at least you're dealing, again, going back to the idea of it being more of a commodity than anything. You have, you have that expertise. And if you go to, if you go look at like the board of trade, you can kind of buy corn from anywhere in the world, right?

You can kind of, it, it's that similar idea of a market. So I think that you can, I, I think that it's different levels and then I think when you get into the tokenization of transactions, I think that's a hundred percent federal reserve as they're the ones that run the payment, the payment system. So I think that there's different pieces in here that are gonna come into.

[00:16:47] Jim Adkins: You, you could almost see a Volker type rule, right? Whether, you know if you're gonna play as a bank in this, you either gotta pick a lane, you gotta be, uh, the transaction side of it, or if you wanna be the balance sheet side of it. [00:17:00] But you, you can't be both. And I. You know, I could see that, that, that tends to make some sense to me.

But, uh, I guess, we'll, we'll see what, what comes up. So what are your thoughts, you know, with this, you know, especially the last part of the, the conversation, what are your thoughts about a US cryptocurrency? I mean, do you think that's the answer? Uh, eventually so that all these private cryptos are gone and, or maybe they're done in a different way.

Maybe they're done in an investment. Kind of format where the US cryptocurrency lines up with the payment side. What? What's your attitude about US Crypto?

[00:17:41] Ryan Kamphuis: Myself. I, I think, and I think I said it last time, uh, CBDC is the kiss of death for our industry. Um, we go away with that. And so I'm not, I'm not a proponent of that, not not at a self preservation. I think that the way we have our banking system and the dual banking system works the best in the entire world.

And so I, I would, I [00:18:00] would be adamantly against. Uh, against a central bank digital currency, I am much more in support of finding ways to tokenize transactions for speed, efficiency and that. And, but then you start getting into the topic of the swift stick around, you know, like that kind of stuff that then you start getting into some other levels of, of detail and thought that I don't believe we're anywhere near, because we haven't even started on page one yet.

[00:18:27] Jim Adkins: Right, right.

[00:18:29] Tommy Fitzgibbon: Well, I think some of it may actually be taken out of our, out of our hands. Um, um, in the house in December. Um, of course there's gonna be some changes after the first of the year, but the chair, Maxine Waters and the panel's top two Republicans, uh, Patrick, uh, Chen of North Carolina, um, uh, um, I planned to hold a hearing in.

On the broader consequences of the digital [00:19:00] asset ecosystem. So it's a bigger, uh, sort of picture, not just looking at cryptocurrency as a value, but also the whole ecosystem that supports it. Now, if Congress decides, I don't know if they, you know, can agree on anything, but if they decide that, you know, there's going to be some regulatory oversight, um, then it's gonna.

[00:19:25] Jim Adkins: we're, you know, um, we deal the banking business. Our, our artisans clients are banks. All sorts of banks, but we have a many, many, many, uh, community banks. And so if, if crypto becomes mainstream in whatever form or fashion that could be, is that a net plus for the industry? I mean, right now, you know, we've, I remember, I don't, these, these numbers are right. Probably in 1985 or so, we had maybe 15,000 bank charters. Now, I haven't looked lately, but they're probably under

[00:19:59] Tommy Fitzgibbon: They [00:20:00] are 4,000.

[00:20:01] Jim Adkins: is crypto. Yeah, I Is this a net plus or is this something that could hasen more consolidation in our community bank sector.

[00:20:18] Tommy Fitzgibbon: Well, I,

[00:20:19] Jim Adkins: a thought at

[00:20:19] Tommy Fitzgibbon: I tend to think of this as sort of a, uh, you know, if in the right environment. Um, the cryptocurrency, uh, process or system is, is very efficient, there's no doubt about it. But, um, I go back to, uh, when, uh, before there were ATMs. You remember that ? I do.

[00:20:42] Jim Adkins: I do

[00:20:42] Tommy Fitzgibbon: And, you know, the early adopters, you know, we're, we're typically, uh, the larger financial institutions and the community banks followed.

I think it's going to be driven to a certain degree by whether or not the large banks, bank of America, Wells Fargo City, um, uh, [00:21:00] chase, if they, you know, sort of get in it and, and support it. I think the community banking, um, partners will, will, uh, wait for them to come out the door without a black eye and and then see if there's something that they could adopt that would, um, enhance, uh, their ability to serve the.

[00:21:25] Eric Bush: Yeah, I, I, I mean, I, I think from a consolidation standpoint, I, I don't know if it's gonna fuel any more or any less consolidation on, on the community bank side. Um, you know, Cryptocurrencies. I, I do think though, that there is a risk that community banks need to tread lightly here. Because if you, you know, if you get into this market and you get your hand caught in the cookie jar, I mean, we just saw, I mean, we weren't talking thousands, we weren't talking millions.

We're talking billions with a b that, that this cur, you know, this exchange took down. So if you [00:22:00] could think of a community, a small community bank, you know, I'm, I'm thinking, you know, these $500 million asset banks, you could, you could easily. everything. I mean, you could lose all your capital and, and, and get, you know, essentially, you know, some sort of, you know, regulator, you know, notice that, that, you know, race capital or else, so, so I, I think that that's the bigger fear in my eyes is that if, if community banks get involved and they don't really understand all the risks with it, then.

You know, one bad transaction could really take the take, take the bank down. Just kinda like how we saw in, in 2008 and 2009, you know, one or two bad loans were taken down banks sometimes, um, you know, and, and, and they looked like good loans and they could have performed like good loans and you could have a transaction that looked great.

But, and then, so I, I think that's, I would kind of watch out for, on the community banking side is, is that the ones that are involved in this, you know, how, how, how are they gonna handle some of that stuff? Because there are the big banks out there like, uh, you know, [00:23:00] the Silver Gate on familiar with Silver Gate out in California, but that, you know, that's a big $15 billion bank.

You know, that that's just totally different animal than a smaller community bank dealing with this.

[00:23:12] Ryan Kamphuis: Yeah, but I think that even, even at 15 billion, right? I, when when, when you think about it and you think about how fast this exposure and how fast this liquidity issue is, is just, I mean, it's like, it's not even a snowball. It's like, I don't even know what to say what it is exactly. But it, it, it's, it's, it's a big issue and it's gonna be a problem for them.

Cause they have a lot, they have, you know, I believe that they have. Not a hundred percent sure about what I've been reading. I believe they have. Um, I, I think, I don't, I don't think that this pushes consolidation necessarily, but I think it as, as these technologies continue to develop, and especially if we end up having these parallel kind of tracks with banking and then whatever this is gonna be called, or whatever it's gonna be in the future, I think

[00:23:57] Tommy Fitzgibbon: Without a.

[00:23:58] Ryan Kamphuis: a huge issue. [00:24:00] It is, you know, this is, I probably wouldn't do this if my dad didn't do it right. It it, I love banking and I, but I understand the importance of. And when you talk to younger people, I was actually just talking down at Whitewater, uh, on Tuesday night, there's not a whole lot of interest in what we do because we're a bunch of stodgy old guys, right.

Who are, you know, not doing anything cool other than keeping the economy going, uh, . But, you know, it's not, it doesn't have that sexiness to it. So I, I worry about the talent. I really a lot.

[00:24:34] Jim Adkins: Right. I mean, someone's gotta process the latte purchase, right? The banking. So we, we are kind of cool, you know, someone's gotta do it

[00:24:40] Tommy Fitzgibbon: Yeah.

[00:24:42] Jim Adkins: but you know.

[00:24:42] Ryan Kamphuis: baristas at Starbucks are a lot cooler than us

[00:24:45] Jim Adkins: Well that's. That's really true. That's true. So, you know, if you're, we, everyone here on the, on the panel has been involved in strategic planning and, and all that.

So, you know, if you have a strategic [00:25:00] plan right now and you're thinking of crypto, are you taking a wait and see approach? Are you just not addressing that at all and just say, okay, you know, Uh, we're gonna let this shake out, or do you, you stay involved and you, you, you, you kind of walk in slowly into the pool.

What would you do if you were in that position?

[00:25:22] Tommy Fitzgibbon: Well, certainly I think

[00:25:24] Ryan Kamphuis: Educate education.

[00:25:25] Tommy Fitzgibbon: uh, to follow up on, on, uh, that talent, um, uh, comment. I think it's really important. It's not only the talent at the bank level, but it's also the talent at the, at the examiner's level. You know, um, if they don't know what they're going to be looking for in a. Uh, bank in, in terms of, uh, of how the bank is exposed in crypto.

Um, you could end up with, uh, with some serious issues as well. So I think that's one of the considerations that bank boards of directors are going to take into consideration as well. What will the regulators say? [00:26:00] Not, not only what is the rule, but what is the, what is the regulation, but also. How will the examiners look at what we're doing and how it exposes, um, the, uh, bank or the F D I C fund to potential losses?

[00:26:19] Ryan Kamphuis: Mm-hmm.

[00:26:20] Eric Bush: You know, I, I, I, I think Ryan hit it on, on its head, you know, education, education, education. I would not run from this. I, I would, you know, actually try to stay as, Close to it as you can without necessarily jumping into the, into the waters of saying, we're gonna do this. I would understand the market, understand where it's going, um, and from a strategic standpoint, always be thinking, you know, how could this help out our bank and how could it help out our shareholders?

Um, you know, are there revenue sources from this? Maybe there are, but you also gotta understand, and this is where the education comes into. Understand what are the risks associated with these, these new revenue streams? You know, if, if you know a [00:27:00] lot of banks, most banks, you know, try to increase non-interest income, okay?

There's transaction fees potentially here, whether it's on, on the payment system side or, or that there's an upside to that, but you gotta understand that risk. As well. So, so I don't think you necessarily need to run from it. I, I also think that this could be transformational. We talked earlier about, you know, the payment systems and, and what that might do to that.

I, I don't want, you know, I'd hate for someone to run away from this because oh, it's too risky. And then lose the next opportunity because we've, you know, you've made a couple quick lefts, um, and, and then you were like, whoa, I, I'm back at square one. And you, and you totally missed it, and you, and you're trying to play catch up.

I dunno who said it. You know, this happened really fast. I mean, a 16 billion trans, or 20 billion, whatever it is in two days, um, is very quick. And I'd hate to have, you know, a transaction like that, you know, scare everybody away. I think you just gotta. Really monitor and follow it going [00:28:00] forward. And we said this earlier, you know, this was the number three exchange out there, number one and number two are still out there.

So what does that mean? Um, uh, for, for our industry? So, I, I, I, hopefully that answers a little bit. I, I, I would not run from it. I, I think you need to stay close to it because I think this is gonna. You know, alter it and we talk about a little bit about, you know, uh, bankers are just seemed as, you know, these boring old guys and things like that.

Well, you start getting into crypto and some of the technology, the blockchain that's involved with that, that's where you can get some of these younger, you know, Kids that are involved with it, that, that are, you know, um, for lack of better term gamers, you know, I think my son would consider myself a gamer, but you know, they understand technology and they understand and they, they gravitate towards that.

And, and when you start talking about what a blockchain looks like and what the future of payments, if it goes onto some sort of blockchain, that's where banking can, I think, You know, attract maybe some of that younger talent that Ryan's talking about at UW Whitewater and, and some of these other universities out there, uh, to, to, to [00:29:00] attract, uh, people into.

It's not just, you know, it's not like it used to be where, you know, it, it's, uh, you know, a lady or a gentleman in a suit, you know, saying, Hey, here, here's a loan, uh, or, you know, take a deposit and make a loan with it. You know, banking's gonna change drastically.

[00:29:15] Ryan Kamphuis: I, I think the other area that, that if you're, if you're thinking about this strategically in any way, shape or form, is you're not gonna write this code on your own in your own shop. Right? You're not, I mean, none of, I don't think most people listening to this have those capabilities in house, and so I think we also need to really align our. Um, with our core providers and hold them accountable to developing the technology that we need to use and provide to our customers. And, um, you know, I, I think that's a big part because you're gonna be limited as well to what can integrate to, or what works with your core. And that's, I mean, you look at your expenses across the board, your, you know, your, your [00:30:00] court expense.

It's right up there, so, and it, it's not gonna get any less. So I think that understanding and working with our core providers becomes key as well.

[00:30:09] Jim Adkins: You know, it maybe, you know, there's been talk over the last several years where you know, you've. You know, four or five core providers out there, and they're all fine companies. We're agnostic as to, you know, who, who deals with whom, right? Um, but, uh, you know, the idea was with cloud computing and things like that.

Maybe the importance of core providers, you know, may lessen, you know, maybe their, their hold on the industry may lessen. However, you know, maybe dovetailing a little bit off what Ryan is. Maybe for the core processors, if they can come up with some solutions here, they can protect their turf and maybe that, that perceived flight to uh, uh, cloud computing as a processing vehicle, you know, might not be as [00:31:00] dramatically bad as some pundits were saying. I don't know. Might be an interesting thing.

[00:31:07] Ryan Kamphuis: if I, if I were doing strategic planning and talking about this with my board, one of the areas that I would be really clear about is I don't think it makes sense for banks to. For community banks particularly. So anybody under 10 billion, probably even bigger than that, to even bother thinking about custody services for this.

I think that the, the price volatility is there. I think the way that clients want to transact business is gonna be kind of beyond the scope of what banks are gonna be able to provide on the rails. And, um, I, I think we would be better off finding ways to partner with some very, uh, provide, uh, you know, uh, appropriate cold storage, wallet things, that kind of stuff where, where you can, you can help your client.

But again, you know, to Eric's point, like you're not putting your bank at [00:32:00] risk. Um, you're just, you're providing the tools, right? So,

[00:32:04] Jim Adkins: right? Yeah. You don't wanna put your balance sheet at risk. I think that, you know, it's like this in a lot of things, uh, especially in a community bank space. You, I, we've always been a big proponent of having thought leaders, you know, even if you're a smaller bank or, you know, maybe you're a big bank, but technology's moving so quickly and think we, you need to have people.

Whether they're young or old or whatever, to kind of understand and bring this to the highest levels of the board executive management and let people know what's happening. So I mean, one of the things I think in a situation like this is don't continue to have thought leaders continue to research and continue to be.

Uh, able to discuss this. You may back off and see, as Tommy said, if someone comes out the door with a black eye, you may not want to go go that way, but you still need to have some thought leadership in this or you're always gonna kind of play, uh, play backup. I'm gonna get a little, little granular or [00:33:00] more granular, I guess.

Um, in regard to compliance issues. This is probably right in Tommy's wheelhouse, but Tommy, you know, the compliance issues of crypto are huge. Uh, how do you think the current compliance framework has to change to take on crypto and all the many BSA issues

[00:33:20] Tommy Fitzgibbon: ofac, you got all that, that, uh, you know, what would impacted, uh, as was mentioned before, because of the anonymity of, of, uh, both the, um, shall we say the seller and the buyer, um, in the cryptocurrency, it opens up the door for some serious, um, uh, issues relative to the, um, uh, to ofac, uh, and to, uh, BSA and kyc.

You know, your know, your. So, uh, even though, um, um, you know, currently there's, there's, uh, there are a lot of challenges with, um, uh, trying to make sure that we control payments to, um, those on the [00:34:00] OFAC list. It, it's going to be even more difficult when you think about whether or not the financial institution as the, um, as the facilitator not necessarily holding anything but the facilit.

As to whether or not the, uh, the bank regulators are gonna hold the bank to the same standard when it comes to facilitating a cryptocurrency transaction. It's gonna be really, I think, interesting to see how they, um, how they, uh, view that. Um, you know, before you go further, there are operational issues as well.

Um, uh, when it comes to, uh, um, you know, facilitating a cryptocurrency transaction, a buy. Or, or, um, strictly a, a, um, a, uh, transaction, a payment, if you will, um, that, uh, need to be, um, uh, vetted as well. So I think there's going to be a lot of current regulations and current, um, uh, [00:35:00] you have to develop a policy.

You have to develop, um, you know, a, a uh, a, uh, procedure to be able to handle the transaction, whether it's your money or. . Um, and, and, um, and, and it, it could cause some concern going forward.

[00:35:17] Jim Adkins: Well, especially when you think as, as Eric made mentioned earlier in the discussion, the international flavor of crypto. Oh my goodness. This is, this is a money

[00:35:28] Tommy Fitzgibbon: Yeah.

[00:35:28] Jim Adkins: LA's dream if we don't have an actual framework to, to, to identify transactions. And that has all sorts of other implications about privacy and you know, goes on.

I'm boggling when you think about.

[00:35:43] Ryan Kamphuis: and you know, these are all, oh, go ahead Eric. Sorry.

[00:35:47] Eric Bush: no. Well, I was just gonna say on the regulatory side, you know, with the FTX collapse, I'm very interested to see, you know, these exchanges, how much of the compliance burden is going to [00:36:00] be, you know, put back on some of these, you know, exchanges that are out there that are facilitating these trades.

You know, I, I kind of equate it to, you know, someone saying something really stupid on Facebook or, or bullying someone on Facebook, you know, and then that person. Does something, you know, does harm or something like that, you know, is Facebook liable for it or is the the person that's doing that communication?

Well, if you think about the, these crypto exchanges, they could almost be in that same type of position where you know, you're setting up two sides or you don't even know who these two sides might be. Um, and so I, I'm really curious to see how much of this OFAC and the bsa, aml, all of this compliance stuff is gonna come back to these exchanges and how they're gonna handle some of that, uh, going forward.

Cuz with this fallout, they're gonna have to assume some of, some of that responsibility going forward.

[00:36:56] Jim Adkins: well.

[00:36:57] Ryan Kamphuis: Yeah, the it,

[00:36:58] Jim Adkins: Think about not only, [00:37:00] uh, from a compliance standpoint, but, uh, Ryan, you know, lending the, you know, if, if, you know, let's, I know we're talking payments, but if you, if you do start doing lending, uh, against crypto assets, I mean, just think about ramifications of that.

[00:37:17] Ryan Kamphuis: Yeah, like, you know, think about if you finance a mi a minor, right? You finance a minor, and then the token is then bought by, uh, you know, it hits the, hits, the slush pool, whatever it goes, gets to an exchange, goes from the exchange, and it goes to, uh, uh, end user for either a nefarious end user or an end user for nefarious purposes.

Right? Who's responsible? Is it? Is it me cuz I lent on it? Is it the minor because they did it? Is it the exchange? Is it, who is it? Um, and I, I would think that based on the transactions that have happened, uh uh as it relates to money leaving the [00:38:00] bank, right, and then going to an exchange to buy whatever, I would have to think that there is enough detail out there that we.

That regulators could really look at it. Now you get into the whole issue of, yeah, the anonymity and the vpn, so you don't really understand the IP address and all those different things. But I, I think there's enough there that the regulators could start building what that plan looks like and develop where that accountability

[00:38:24] Tommy Fitzgibbon: Well, like, like, uh, like everybody who has ever robbed a bank has been asked and they said, why did you rob the bank? Cuz that's where the money is. So, So attorneys, if they think that there's liability, you know, are they gonna go after an exchange that has no assets or are they gonna go after the bank that has assets?

So those, those things you have to consider, that's a reputational risk.

[00:38:51] Eric Bush: Well, that, that funny brought that up, that, that analogy, because if you look at the, there's a lawsuit right now suing ftx and, and who, who are the, [00:39:00] the, who are they suing? They're suing Tom Brady, Giselle, qui O'Neal, Seth Curry. They have money. , you know, their money didn't go missing. Like the FDX is money.

So, you know, the, the

[00:39:14] Ryan Kamphuis: And you think Tom and GI have had a tough enough month. They don't need this added on,

[00:39:17] Jim Adkins: Yeah. Yeah.

[00:39:20] Eric Bush: Yes. They

[00:39:21] Jim Adkins: Eric, uh, you being the, uh, the accountant on the, on the panel here, this, the, this, the cryptocurrency seems like a, an accounting industry dream come true. Okay. As far as new accounting rules, new regulations, I mean, I just, it just seems to be like this is the full employment act for accountants.

What, what's your thoughts on accounting and crypto?

[00:39:47] Eric Bush: Yeah. I, I, I, I think that, that, that he hit on the head. I mean, how, how do. How do you value some of this stuff now, whether it's US, gap or ifs? Yeah. I mean, this is, could be a windfall as far as how do you [00:40:00] value something like this? Do you do, do you put at a spot rate? Do you, do I do some sort of an average rate?

I'm just trying to think of, you know, accounting, you know, methodologies that we use for, for different value valuing, uh, different assets on your balance sheet. Um, And, and as you go to international operations, how you bring some of that and how you convert it? I, I, I think that, yes, this just goes back to the regulated or the regulation of, of it, you know, how, how do you value it?

Um, you know, Jim, you, I'll go off on a tangent a little bit. You mentioned lending. You know, I am aware of banks that, uh, you know, F D I C regulated banks that are lending with, uh, cryptocurrencies as collateral now. I do know that to limit some of their risk, what they have done is, um, they have essentially said that the, you need a US dollar equivalent of.

Of the, of the digital currency, if that makes sense. So they might lend out $5 [00:41:00] million and say that you need to keep for collateral, $3 million worth US dollars a Bitcoin. They don't necessarily care how many Bitcoins it takes to get to that 3 million, but it'll be, you know, it needs to be 3 million US dollars worth of those bitcoins.

So if that's 50 or 75, they don't necessarily care. So it'll be interesting to see how the regulators. The fjc OCC are gonna view these banks that, that are, are currently engaged in that activity, um, and how to value some of the, some of that, that collateral. Uh, but, but you're right. It is a potential windfall for some of these consulting companies that, that are gonna have to come out and say, here, here's how to.

how to evaluate it, you know? Um, and there's organizations out there that are begging, uh, and pleading Congress to, you know, uh, I think we talked in a previous conversation, the Chamber of Digital Commerce. They're out there begging for frameworks on how to value digital currencies. [00:42:00] Um, uh, on, on banks balance sheets and not just banks, uh, comp companies.

Uh, overall, um, you know this, you think it's banks, but there could be other companies out there that might have assets that are digital currency based that, that are gonna have to get involved with that. And then, you know, are those companies public? Then all of a sudden, the SEC's got a hand in it, right?

So you get into this web that we talked about earlier as far as, yes, everyone agrees there needs to be regulation, but then where does it start and where does it stop? Where's the overlap? You know, Ryan was kind of trying to figure out, okay, I think you gotta start here with this piece of it, and you gotta start with this regulator on this piece, and kind of divide and conquer and kind of see where you go at the end, where it takes you, uh, down those many paths.

And hopefully it kind of all leads to one big nice, happy path at the end. But, um, long winded answer. I I, I guess, but yes, it, it's gonna have to be addressed in, in, in the whole regulation comment, is just how to value these.

[00:42:54] Jim Adkins: Um, so.

[00:42:55] Ryan Kamphuis: and. And, and with that regulation, with, with, with that [00:43:00] discussion about that there, there's gonna be, I think we all would agree based on, you know, historical behaviors since 2019, 99, 2000, that the knee jerk reaction on regulation is always, it, it's significant after something happens. And so I think that we're gonna have, there's gonna be some healthy knee jerk and it's gonna be, Kind like how we had, how we kinda look at mortgages now, like, do you really wanna do it because there's a lot of paperwork and there's a lot of room for error and, um, you, you get really good at it if you're gonna do it, but is that really the road you wanna go down?

[00:43:36] Jim Adkins: right. I think you're right. You know, dad Frank, when they first came out, As a result of the Great Recession, DOD Frank came out and there were a lot of elements of dod Frank that were just, in hindsight, didn't make any sense. Then they came back and they made provisions for small banks and you know, you know, cleaned it up.

So you'll probably have a knee jerk one way, and then with some perspective you go back and [00:44:00] you, and you make adjustments. Last question for everybody, what's the over and. That, uh, Congress gets some meaningful legislation over the next two years on cryptocurrency and, and, and frameworks and all of that kind of stuff.

What, what's your guess?

[00:44:14] Tommy Fitzgibbon: Well, um, as I, as I said before, Maxine Waters is gonna start holding, uh, um, committee meetings in December, which might lay the groundwork for something that could be done in the newly formed house. But I think the, uh, at least the rhetoric that's out there right now is that the house is just going to try to do the minimum that it needs to do while, uh, making sure that Biden doesn't get anything done.

So, , I,

[00:44:46] Ryan Kamphuis: Yeah.

[00:44:47] Tommy Fitzgibbon: I would say that's

[00:44:48] Ryan Kamphuis: Yeah. I, think a lot could be, I, I think the process could be much smoother than what we're, I believe currently [00:45:00] anticipating. If the regulators would all sit down at the table and, and just say, okay, we gotta figure out what's best for the consumers and the institutions, we gotta figure it out. And who can do this part, right?

Who can do this part, who can do this part and not be so concerned? You know, if the budget's a hundred. , you can divide it in thirds, quarters, whatever. It doesn't matter. Just get it done. Go and then go with a plan to, uh, Congress and say, this is an idea of it. This is an outline of what we could do and it protects consumers.

Cuz at the end of the day, that's what we all wanna do, right? Everybody wants to protect the consumer, make sure the industry is strong. And I, I think they need to start there as opposed to, you know, hoping against hope. Common sense will suddenly prevail in Washington DC when it's been absent for a long time.

[00:45:53] Eric Bush: Right. Well, Jim, Jim, I, I'm gonna end on a positive note and, and I'm gonna take that over. I, I, I think something's gonna [00:46:00] happen, um, on, on, on this front, uh, in, in, in a positive front. And, and the reason I say that is, you know, we're gonna have a divided Congress and, you know, I, I look at some of the hotbed issues out there.

I don't see any agreement on immigration. I don't see. Your agreement on climate? I don't see a ton, uh, of, I'm trying to think of, so, you know, I, I just don't see them agreeing on a lot of issues, and I think this is one where, you know, the, the dollars are just too big for them not to try to come up with something, um, out there.

So I, I, I'm gonna end on a positive note and I'm gonna say they're gonna come up with something. Um, and I'll go a step further on a topic. You know, not necessarily on this. I, I think in the next two years they'll get something on the marijuana banking side as well, um, past that, that's gonna help banks out, uh, in the industry cuz uh, I think that's another area where there's a lot of money and, and they, they need to, to, to come together.

So I'm, I'm gonna, how about that Jim, I'm gonna end on a positive note and I'm gonna take the [00:47:00] over, I could be totally wrong, but I'm gonna take it and, uh, you know, and. Hopefully in two years we can come back and, and, and play this. And I, I can, you know, not look like a fool.

[00:47:09] Jim Adkins: You're on tape. That's right. You're on tape. . We know it's.

[00:47:14] Ryan Kamphuis: Well we could, we could talk about this. Isn't this becoming a recurring Thursday call now? We could talk about the marijuana banking next

[00:47:19] Jim Adkins: Yeah,

[00:47:19] Eric Bush: We, yes.

[00:47:21] Jim Adkins: I got the name for the podcast. Uh, high Times in Banking. I mean, that's what we can.

[00:47:25] Eric Bush: Yeah. There you go. I.

[00:47:27] Jim Adkins: Well, any event, uh, we're out of time. Uh, there are many questions and issues that we, uh, did not get to, but feel free to email me any questions you might have and I'll get the questions to the panel. My email, which is also on our website, is Jay Adkins and artisan advisors.com.

I want to thank Ryan, Eric, and Tommy for joining me today and artisan on Artisan Unfiltered. Until next time, this is Jim Adkins. Thanks for listening.

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