Acting Comptroller of the Currency Michael Hsu delivered a pointed message of caution to banks looking at giving retail clients access to cryptocurrency.

"For those institutions that really, really want to get in it, do the back test against the Terra collapse," Hsu said Sept. 7, referring to the unraveling of the algorithmic stablecoin that triggered a broad crash in cryptocurrencies in 2022. "It's pretty devastating how people have been hurt. And I think if you're an institution, imagine those are your clients. And they use your service and they lost that money, and now they want to be made whole."

A number of smaller banks have sought to embed cryptocurrency custody and trading capabilities in their customer platforms, following in the footsteps of companies such as Robinhood Markets Inc. and PayPal Holdings Inc. However, inquiries to the Office of the Comptroller of the Currency by the "crypto curious" have slowed after the crash, Hsu has said. The agency has required banks to seek "supervisory nonobjection" letters before engaging in a range of cryptocurrency activities since 2021.

Hsu suggested that interested banks comb through social media posts of people who suffered losses in the crash. "It is not pretty," he said at a conference hosted by The Clearing House and the Bank Policy Institute. "The buyer beware disclaimer was slapped all over crypto going into it. And yet people still felt scammed for those losses.

"I think you just have to go in eyes wide open," Hsu said.