Crypto custody: How banks safeguard digital assets

Last updated: November 6, 2026

Crypto custody is how a bank holds and safeguards digital assets for a customer. It combines control of transfer credentials with records, approval procedures and risk management. Details vary by bank and arrangement.

How crypto custody works at a bank

What crypto custody means

A traditional bank account records a balance in the bank’s systems. Crypto exists on a blockchain, so a custodian manages the credentials and procedures used to authorize transfers. On July 14, 2025, the Federal Reserve, FDIC and Office of the Comptroller of the Currency (OCC) said crypto-asset safekeeping means holding an asset on a customer’s behalf. A bank may provide it in a fiduciary or non-fiduciary capacity.

That distinction concerns the bank’s legal role, not the coin itself. The custody agreement and applicable law describe responsibilities, fees and transfer requests. Terms and protections can differ between providers.

The agencies’ guidance on crypto-asset safekeeping says possession of a key alone does not prove that a bank controls an asset. If a customer retains a copy that allows independent transfers, the bank may not have sole control.

From deposit to authorized transfer

A typical process begins with an account and an agreed way to receive supported assets. The customer sends crypto to an address managed under the custody arrangement. The blockchain records the transaction, while the bank keeps records linking the asset to the customer.

The custodian protects transfer credentials and applies its approval procedures. When a customer requests a transfer, the bank checks account permissions and internal controls before broadcasting the transaction. The workflow depends on the provider and contract.

An approved withdrawal sends crypto to a specified blockchain address. A completed blockchain transfer generally cannot be reversed like an entry in an internal ledger, so address errors or unauthorized transfers can have serious consequences.

Wallets, keys and access controls

Wallets vary in their internet connection. The interagency statement of July 14, 2025 describes “cold” storage, disconnected from the internet, and “hot” storage, which remains online. Hot wallets can make transactions easier to process, but the agencies say they are generally less secure.

There is no single setup used by every bank. Safeguards may limit who can initiate or approve transfers and include monitoring for unusual activity. Controls need to fit the service and its risks, with clear authority over each transfer.

Banks may also use outside providers. On May 7, 2025, the OCC confirmed that national banks and federal savings associations may outsource permissible crypto custody or execution services, subject to appropriate third-party risk management. Its statement on custody and execution services says they may also buy or sell assets held in custody when directed by a customer.

What bank custody does and does not cover

Custody concerns safekeeping and authorized movement. It does not protect an asset’s value, ensure uninterrupted blockchain or application operation, or ensure reimbursement for every loss. Customers remain exposed to volatility, theft, operational failure, smart contract vulnerabilities and assets becoming difficult to transfer or trade.

Outsourcing adds provider and operational risks. Customers can ask which entity controls the assets, how withdrawals work, what happens during a service disruption and how the agreement treats losses. A bank’s involvement does not prevent losses or establish that a crypto asset is insured.

Accounting and securities rules are separate from wallet mechanics. The SEC issued Staff Accounting Bulletin No. 122 on January 23, 2025, effective January 30, rescinding the prior crypto-safeguarding guidance in SAB 121. Under SAB 122, entities assess any safeguarding-loss liability using applicable contingency accounting standards. On October 1, 2026, the SEC proposed custody-rule changes for investment advisers and regulated funds. The proposal is not an adopted rule.

Choosing between a bank and other custody arrangements

Some investment products hold crypto through a custodian, while investors own product shares rather than directly controlling the underlying wallet. That differs from direct custody.

Not every bank supports every token, network or feature. Custody may not include trading, staking or decentralized finance use. Check asset coverage, transfer rules, fees, legal terms and outside-provider arrangements in the current agreement. These details vary and can change.

As of November 5, 2026, U.S. agencies have described a risk-management framework for bank safekeeping, but services and legal arrangements remain provider-specific. Custody can address how assets are controlled and recorded, not eliminate financial or technical risks.

Frequently asked questions

How does crypto custody work for banks?

A bank holds crypto for a customer, manages transfer credentials and procedures, and records the customer’s interest. The agreement and controls determine the process.

Does a bank own the crypto it holds in custody?

Custody means holding assets for a customer, not necessarily owning them. Rights and duties depend on the service structure, agreement and applicable law.

Are crypto assets in bank custody insured?

Do not assume custody is insured. Whether any coverage applies depends on the asset, service and applicable rules. A bank’s role alone does not establish insurance or mean repayment will follow a loss.

Can a bank outsource crypto custody?

According to the OCC’s May 7, 2025 statement, national banks and federal savings associations may outsource permissible crypto custody or execution services, subject to appropriate third-party risk management.

Sources

• Crypto-Asset Safekeeping by Banking Organizations (www.federalreserve.gov)
• OCC Clarifies Bank Authority to Engage in Crypto-Asset Custody and Execution Services (www.occ.gov)
• Agencies issue joint statement on risk-management considerations for crypto-asset safekeeping (www.federalreserve.gov)

This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrencies are highly volatile; always do your own research before investing.