Can't help but wonder about the securities and convenience that comes with such. Would such a move increase the usage and adoption of Bitcoin? Knowing it can be held by banks?
Yes it will increase
thwthe adoption of bitcoin and give people more confidence in bitcoin because the government is involved. Take for example, when Bitcoin ETF was lunched, a lot of investors came on board especially, those who are scared with the responsibility of being their own bank and that triggered the price of bitcoin to shoot up. However, if you have your bitcoin in the bank, it's only fiat value and not real bitcoin that can be moved from one wallet to the other.
Self custody is the best and that was how Satoshi designed bitcoin to be stored. It's just like you keeping your fiat money under your bed and take from it whenever you want to spend but if you give a friend to hold that money for you, you wouldn't be able to access it at your own convenience and your friend can use the money unknown to you.