US Regulators and Federal Reserve Issue Joint Warning on Crypto Liquidity Risks – Bitcoin Regulatory News

US regulators and the Federal Reserve have issued a joint warning about key liquidity risks associated with crypto assets. However, 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 Federal Reserve System Board of Governors, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) jointly issued a statement on crypto on Thursday.

The Federal Reserve, FDIC and OCC explained that their statement “highlights key liquidity risks associated with crypto assets and crypto industry participants that banking organizations should be aware of.” They warned:

In particular, certain funding sources from crypto-related entities may pose heightened liquidity risks to banking organizations due to the unpredictability of the scale 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 “end customer behavior or the dynamics of the crypto asset sector, rather than just the crypto asset entity itself, which is the direct counterparty of the banking organization. ,” warned regulators. “Such deposits can be susceptible to large and rapid inflows and outflows as end customers react to market events related to the cryptocurrency industry, 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 dislocations in cryptoasset markets,” the regulators detailed.

Banking organizations that use crypto entity funding sources need to actively monitor liquidity risks and establish effective risk management and controls, advised the Federal Reserve, FDIC and OCC. Emphasizing that banking organizations must apply existing risk management principles to cryptocurrencies, regulators clarified:

Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.

The Fed, FDIC and OCC also issued a joint warning about crypto risks in January. Regulators cited fraud, scams, legal uncertainties, inaccurate or misleading representations by cryptocurrency companies, significant volatility in cryptocurrency markets, execution risks and contagion risks.

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What do you think of the Joint Crypto Alert from the Federal Reserve, the FDIC and the OCC? Let us know in the comments section below.

Kevin Helms

An Austrian economics student, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects, and the intersection of economics and cryptography.

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