US regulators and the Federal Reserve have issued a joint warning about key liquidity risks associated with crypto assets. However, the regulators clarified that banks “are not prohibited or discouraged from providing banking services to customers of a specific class or type, as permitted by law or regulation.”
US regulators issue a joint statement on crypto
The board of directors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) jointly issued a statement on Thursday regarding crypto.
The Federal Reserve, the FDIC, and the OCC explained that their statement “highlights key liquidity risks associated with cryptoassets and participants in the cryptoasset industry that banking organizations should be aware of.” They warned:
In particular, certain sources of funding from crypto-asset-related entities can pose heightened liquidity risks to banking organizations due to the unpredictability of the size and timing of deposit inflows and outflows.
For example, the stability of deposits made by crypto entities on behalf of their clients may be determined by “the behavior of the end customer or the dynamics of the crypto asset industry, and not just by the crypto asset related entity itself, which is the direct counterparty of the banking organization,” the regulators warned. “Such deposits can be prone to large and rapid inflows and outflows as end customers react to crypto asset sector related market events, media reports and uncertainty.”
Another example is deposits that “constitute stablecoin-related reserves,” which “may be susceptible to large and rapid outflows,” including from “unexpected stablecoin redemptions or disruptions in crypto asset markets,” the regulators said.
Banking organizations using crypto-entity funding sources should actively monitor liquidity risks and establish effective risk management and controls, advised the Federal Reserve, the FDIC and the OCC. While emphasizing that banking organizations should apply existing risk management principles to crypto, the regulators clarified:
Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any class or type, as permitted by law or regulation.
The Fed, FDIC, and OCC also issued a joint warning about crypto risk in January. The regulators cited fraud, scams, legal uncertainties, inaccurate or misleading statements by crypto companies, significant volatility in crypto markets, exposure and contagion risks.
What do you think of the joint warning on cryptocurrency by the Federal Reserve, the FDIC and the OCC? Let us know in the comments below.
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