U.S. Regulators Issue Joint Statement on Crypto Risks

U.S. regulators again warned banks Thursday of the risks their crypto clients pose to the U.S. banking system, the latest in a joint effort by federal agencies to rein in the cryptocurrency industry as it recovers from the collapse of FTX.

Key Takeaways

  • Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency again warn banks about risks tied to cryptocurrency. 
  • The joint statement follows a similar warning only seven weeks ago.
  • Regulators have updated their comments in light of recent stablecoin scrutiny.

The Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint statement Thursday warning U.S. banks of the liquidity risks associated with crypto-assets, saying “certain sources of funding from crypto-asset-related entities may pose heightened liquidity risks to banking organizations due to the unpredictability of the scale and timing of deposit inflows and outflows.”

The statement builds on a similar warning issued seven weeks ago as the dust settled after the FTX meltdown.

While banks aren’t prohibited or discouraged from working with “customers of any specific class or type, as permitted by law,” lenders should “actively monitor the liquidity risks inherent in such funding sources and establish and maintain effective risk management, the regulators said.”

On “deposits placed by a crypto-asset-related entity,” banks were warned, “the stability of such deposits may be driven by the behavior of the end customer or crypto-asset sector dynamics, and not solely by the crypto-asset-related entity itself.” It was another reminder of the risks posed by entities such as FTX, whose collapse was sparked by heavy selling of its native token.

The regulators also warned of risks posed by stablecoin reserves, saying their stability is contingent on “demand for stablecoins, the confidence of stablecoin holders in the stablecoin arrangement, and the stablecoin issuer’s reserve management practices.” That statement follows recent efforts by the New York District Financial Service and the Securities and Exchange Commission to crack down on stablecoin issuers and staking services

Source link