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US Regulators and Federal Reserve Issue Joint Warning on Crypto-Liquidity Risks – Regulation Bitcoin News
US regulators and the Federal Reserve have issued a joint warning about key liquidity risks associated with crypto-assets. On the other hand, the regulators clarified that banks are “neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.”
US regulators issue joint statement on crypto
The Board 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 explained that their statement “highlights important liquidity risks associated with cryptoassets and participants in the cryptoasset sector that banking organizations should be aware of.” They warned:
In particular, certain sources of funding from crypto-asset-related entities may pose increased liquidity risk to banking organizations due to the unpredictability of the volume and timing of deposit inflows and outflows.
For example, the stability of deposits by crypto-entities for the benefit of their customers may be driven by “the behavior of the end customer or the dynamics of the crypto-asset sector, and not only by the crypto-asset-related entity itself, which is the banking organization’s direct counterparty,” the regulators warned. “Such deposits may be susceptible to large and rapid inflows as well as outflows as end clients react to market events, media reports and uncertainty related to the crypto-asset sector.”
Another example is deposits that “constitute stablecoin-related reserves,” which can be “susceptible to large and rapid outflows,” including from “unexpected stablecoin redemptions or dislocations in cryptoasset markets,” the regulators detailed.
Banking organizations that use funding sources from crypto entities must actively monitor liquidity risk and establish effective risk management and controls, the Federal Reserve, FDIC and OCC advised. While stressing that banking organizations should apply existing risk management principles to crypto, the regulators clarified:
Banking organizations are neither prohibited nor discouraged from offering banking services to customers of any particular class or type, as permitted by law or regulation.
The Fed, FDIC and OCC also issued a joint warning about crypto risks in January. The regulators cited fraud, fraud, legal uncertainty, inaccurate or misleading representations by crypto companies, significant volatility in crypto markets, ongoing risk and contagion risk.
What do you think of the joint cryptocurrency warning from the Federal Reserve, FDIC and OCC? Let us know in the comments section below.
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