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) have jointly issued a warning to banking organizations regarding the key liquidity risks associated with crypto assets. 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.
Crypto assets have been gaining traction in recent years, with more and more people investing in them. This has led to an increase in the number of crypto-related companies, as well as the emergence of stablecoins. As such, the Federal Reserve, the FDIC, and the OCC have issued a joint statement to highlight the key liquidity risks associated with crypto assets.
The statement explains that certain sources of funding from crypto asset-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 instance, the stability of deposits by crypto entities for the benefit of their customers may be driven by the behavior of the end customer or crypto-asset sector dynamics, and not solely by the crypto-asset-related entity itself. This means that deposits can be susceptible to large and rapid inflows as well as outflows, when end customers react to crypto-asset-sector-related market events, media reports, and uncertainty.
In addition, deposits that constitute stablecoin-related reserves may also be susceptible to large and rapid outflows, including from unanticipated stablecoin redemptions or dislocations in crypto-asset markets. Therefore, banking organizations using funding sources from crypto entities need to actively monitor liquidity risks and establish effective risk management and controls.
The regulators also emphasized that banking organizations should apply existing risk management principles to crypto, such as fraud, scams, legal uncertainties, inaccurate or misleading representations by crypto companies, significant volatility in crypto markets, run risks, and contagion risks.
Overall, the joint statement from the Federal Reserve, the FDIC, and the OCC serves as an important reminder that banking organizations should take the necessary steps to protect themselves from the risks associated with crypto assets. It is essential for banks to remain aware of the potential liquidity risks posed by crypto-asset-related entities, and to ensure that they have the necessary risk management and control measures in place. Furthermore, banks should not be discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.