Federal regulatory agencies including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) have issued a joint statement emphasizing the importance of risk management among banks that partner with crypto firms.
In the statement, the agencies pointed out the heightened liquidity risks that could arise from certain sources of funding from crypto-asset-related entities. The unpredictability of deposit inflows and outflows is a major concern for banking organizations, which could face challenges if they don’t take appropriate risk management measures.
As regulators continue to voice concerns about the cryptocurrency market, the joint statement has put financial institutions on high alert. The statement serves as a reminder to banks that they must be vigilant and take appropriate measures to manage the risks associated with the crypto sector.
While the statement does not create new risk management principles, it does reiterate the importance of proper risk management related to the crypto sector. The statement emphasizes that banks are not prohibited from providing banking services to customers of any specific class or type, as long as it is permitted by law or regulation.
However, the lack of detailed guidelines on what is or is not allowed, or under what justification, has left investors and banks uncertain about the future of cryptocurrency regulation.
The instability of crypto-assets is a major concern for regulators. The unpredictability of deposit inflows and outflows can create significant liquidity risks for banks that partner with crypto firms.
The stability of deposits placed by a crypto firm may be driven by end-customer behavior or by dynamics within the crypto sector, rather than by the crypto partner itself, which could pose risks during periods of stress, market volatility and interconnected vulnerabilities.
Regulators are also paying close attention to stablecoin reserves, which were labeled a liquidity risk in the joint statement. The increased scrutiny on stablecoins comes in the wake of action taken against Paxos and its partnership with Binance, which has caused concerns among investors and regulators alike.
