US regulators and Federal Reserve issue joint warning about crypto liquidity risks
The statement regarding cryptocurrencies was issued jointly by 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) on Thursday. The Federal Reserve and the Federal Deposit Insurance Commission and the Office of the Comptroller of the Currency explained that their statement highlights key liquidity risks associated with cryptocurrencies and all brethren in the crypto asset sector that banking organizations must be aware of. He warned that certain sources of funding, particularly from entities related to crypto assets, could create and exacerbate liquidity risks for banking organizations only because of the uncertainty over the timing of the deposit effect and the scale of withdrawals.
For example, the stability of deposits by crypto institutions to benefit their customers may be driven by the behavior of the end customer or the dynamics of the crypto asset sector, and not just by the entity concerned with the crypto asset, which is a direct and indirect asset of the banking organization. There is opposition. The regulator was told by them that such deposits may be susceptible to exits with large and rapid inflows when clients react to certain market events and media reports and uncertainty thereof in the end crypto asset sector itself.
Another example of deposits that constitute reserves related to stablecoins that may be “susceptible to large and rapid outflows” include unexpected stablecoin redemptions or the economy and dislocations in crypto asset markets. . The Federal Reserve, the FDIC, and the OCC recommend that crypto entities only be required to actively monitor and establish liquidity risk monitoring and banking organizations that source funds and require banking organizations to Existing risk management principles should be applied to cryptocurrencies where necessary. Banking organizations are neither reflected nor discouraged to provide banking services to any particular class or type of customers as may be permitted by law or regulation. The Federal Reserve and the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have all issued a warning in January about cryptocurrency risk, and the regulator has explicitly called for fraud, scams, legal uncertainties, false or misleading representations by crypto companies. Significant volatility in the markets, risk aversion and contagion risks were noted.