Digital asset depository bill advanced

A bill that would establish a state-level regulatory system for digital assets — including cryptocurrency such as Bitcoin — advanced from general file May 10.

LB649, as introduced by Norfolk Sen. Michael Flood, would allow creation of digital asset depository institutions in Nebraska.

Flood said the bill would provide two pathways to managing digital currency: a state-chartered bank could create a digital asset division or a digital asset depository could be created under a new charter. Both would be regulated by the state Department of Banking and Finance.

“We’re talking about technology that is transforming the way business is done,” Flood said, adding that Nebraska would be second only to Wyoming in creating a state regulatory system for digital assets.

Among other provisions, the bill would:
• establish procedures for incorporation, operation, liquidation and dissolution of digital asset depository institutions;
• prohibit digital depository institutions from taking cash deposits or lending cash;
• require a digital depository’s headquarters and office of the chief executive officer to be established in Nebraska;
• allow digital depositories to be held by a bank holding company and allow existing bank investment in such a depository;
• require notice to customers that accounts are not insured by the Federal Deposit Insurance Corporation if applicable;
• require a surety bond or pledged investments and specified private insurance; and
• authorize digital depositories to obtain federal deposit insurance if available.

Sen. Matt Williams of Gothenburg, chairperson of the Banking, Commerce and Insurance Committee, said national banks already manage digital assets but state banks in Nebraska currently cannot. He said LB649 was the result of extensive negotiations with stakeholders in the banking community and would provide ample consumer protections.

“It also opens the door to opportunities for our existing state-chartered financial institutions,” he said.

A committee amendment, adopted 39-1, would:
• establish a minimum capital requirement of $10 million;
• allow a digital asset depository to use the term “bank” in its name only if it is clear that the entity is managing digital assets;
• allow digital depositories to apply for membership in the Federal Reserve Bank system; and
• authorize the director of the Department of Banking and Finance and the governor to set the assessment of digital depositories to cover administration costs.

Bennington Sen. Wendy DeBoer supported LB649, saying it would establish a strong regulatory framework that would provide stable cryptocurrencies. The bill also would create good, high-tech jobs, she said.

Sen. Tony Vargas of Omaha said no asset has grown faster over the past 10 years than cryptocurrency. LB649 would open Nebraska to digital currency while providing safeguards, he said.

“We have to be among those in front of these changes,” Vargas said.

Flood offered an amendment that would transfer $712,489 from the state’s Securities Act Cash Fund to the Financial Institution Assessment Fund by Oct. 30, 2021, and $397,089 by Oct. 30, 2022, to cover regulatory start-up costs.

Senators adopted the amendment on a 32-1 vote and advanced LB649 to select file 39-1.