US regulators and the Federal Reserve have issued a joint warning regarding the most serious liquidity risks associated with crypto assets. However, The authorities made clear that banking institutions are not restricted or discouraged from offering banking services to customers of any type or class, provided that it is permitted by law.
US Regulators Issue Joint Notice 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 an announcement about cryptocurrencies Thursday.
The Federal Reserve, FDIC, & OCC specified their views “highlights key liquidity dangers associated with crypto assets and crypto asset sector participants that banking organizations need to be aware of.” They warned:
Due to the unpredictability of the timing and size of deposits inflows and outflows, banks may be exposed to increased liquidity dangers from certain sources of funding that are crypto-asset-related entities.
For instance, the steadiness of crypto-entity deposits may be used to the benefit of their customers. This can be done “by end-customer behavior or crypto-asset industry dynamics, and not exclusively by the crypto-asset-related entity itself, which is the direct counterparty of the banking organization,” the regulators cautioned. “Such deposits could also be subject to large and rapid inflows and outflows as end-customers respond and change to market events, media reports, uncertainty, and crypto-asset-related market conditions.
Reserves associated with stablecoins, for instance, are an example. These constitute “stablecoin-related reserves,” and are “susceptible to large and rapid outflows,” as well as from “unanticipated stablecoin swaps or dislocations in crypto-asset markets,” the regulators specified.
Banking institutions that source funding from crypto entities need to be vigilant about liquidity and have effective controls and management. The Federal Reserve, FDIC and OCC suggested that banks should apply existing risk management standards to cryptocurrencies.
Banking organizations will not be restricted or discouraged from offering banking services to customers of any class or type, as permitted by law.
The Fed, FDIC, and OCC also released joint warnings about the risks of cryptocurrencies in January. Regulators outlined fraud, scams and legal uncertainties. Additionally, they mentioned deceptive or inaccurate representations made by crypto companies, extreme volatility in crypto markets, execution risks, and contagion threats.
What do you think of the alert on cryptocurrencies from the Federal Reserve, the FDIC and the OCC? Let us know via the feedback page.
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