US regulators and the Federal Reserve have issued a joint warning about the key liquidity risks associated with crypto assets. However, Regulators clarified that banks “will not be prohibited or restricted from providing banking services to customers of a particular class or type as permitted by law or regulation”.
US regulators issue joint statement on crypto
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) jointly released a statement on crypto on Thursday.
The Federal Reserve, FDIC and OCC said their statement “highlights key liquidity risks related to crypto assets and participants in the crypto asset sector that banking organizations should be aware of.” They warned:
In particular, certain corporate funding sources related to crypto assets may pose increased 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 from crypto entities in favor of their customers may be due to “the behavior of the end customer or the dynamics of the crypto-asset sector and not just the crypto-asset-related entity itself, which is the direct counterparty of the banking organization,” warned the regulators. “Such deposits can be vulnerable to large and rapid inflows and outflows as end customers react to market events, media reports and uncertainties surrounding the crypto-asset sector.”
Another example is deposits that “represent reserves related to stablecoins” that can be “vulnerable to large and rapid outflows,” including “unanticipated stablecoin redemptions or dislocations in crypto-asset markets,” according to regulators.
Banking organizations that use funding sources from crypto entities must actively monitor liquidity risks and put in place effective risk management and controls, the Federal Reserve, the FDIC and the OCC have advised. While emphasizing that banking organizations should apply existing risk management principles to crypto, regulators clarified:
Banking organizations are not prohibited or restricted from providing banking services to customers of any class or type, to the extent permitted by law or regulation.
The Fed, FDIC, and OCC also issued a joint crypto risk warning in January. Regulators mentioned scams, scams, legal uncertainties, inaccurate or misleading representations of crypto companies, significant volatility in crypto markets, risk of run and risk of contagion.
Tags in this story crypto liquidity risk, crypto risk, fdic, fdic crypto, fed, fed board, federal reserve, federal reserve crypto, occ, occ crypto, US regulators crypto
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Kevin Helms
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