U.S. regulators and the Federal Reserve have issued a joint warning about the major liquidity risks associated with crypto assets. However, regulators clarified that banks are “neither prohibited nor restrained from providing banking services to certain classes or types of customers as permitted by law or regulation.”
U.S. regulators issued a joint statement on cryptography
The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint statement on crypto on Thursday.
The Federal Reserve, FDIC, and OCC described their statement as “highlighting key liquidity risks associated with crypto assets and crypto asset sector participants that banking organizations should be aware of.” They warned.
In particular, certain funding sources from crypto-asset related entities may pose heightened liquidity risk to banking organizations due to the unpredictability of the size and timing of deposit inflows and outflows.
For example, the stability of deposits by crypto-entities for the benefit of customers “may be driven not only by the crypto-asset-related entities themselves, which are the direct counterparties of the banking organization, but also by end customer behavior or the dynamics of the crypto-asset sector,” the regulator warns They have stated that.” Such deposits could be affected by large and rapid inflows as well as outflows when end customers react to crypto asset-related market events, media coverage, and uncertainty.”
Another example is deposits “comprising stablecoin-related reserves,” which regulators have detailed may be “susceptible to large and rapid outflows” from “unexpected stablecoin redemptions or crypto asset market disruptions.”
Banking organizations using funding sources from crypto entities need to actively monitor liquidity risk and establish effective risk management and controls, the Federal Reserve, FDIC, and OCC advised. While emphasizing that banking organizations should apply existing risk management principles to crypto, regulators clarified that.
banking organizations are neither prohibited nor restrained from providing banking services to certain classes or types of customers, as permitted by law or regulation.
The FRB, FDIC, and OCC also issued a joint warning in January regarding crypto risks. The regulators mentioned fraud, scams, legal uncertainty, inaccurate or misleading representations by crypto companies, significant volatility in the crypto market, execution risk, and contagion risk.
Image credits: Shutterstock, Pixabay, Wiki Commons
