Banks are allowed to continue to operate the crypto industry, the Federal Reserve clarifies
Banks are allowed to continue to operate the crypto industry, the Federal Reserve clarifies
America's 3 Bundesbank supervisory authorities had a clear message for banking organizations on Thursday: the operation of the crypto industry is neither illegally advised.
However, the institutions-including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC)-called various risks that must be followed in the interaction with the crypto sector, and which risk management campaigns are followed.
crypto is risky, but still allowed
The statement began to reminds banks to apply existing risk management principles in dealing with cryptofire-but did not create any new ones to follow Principles.
"Bank organizations are neither prohibited nor prevented from offering banking services for customers of a certain class or type of how this is permissible or official," it says.
However, the supervisory authorities claimed that certain "liquidity risks" affect crypto more than other industries. One reason for this is the "unpredictability" of deposit inflows and outflows -in particular deposits that are made to the direct benefit of the customers of a crypto unit.
"The stability of the insoles can be influenced, for example, by stress periods, market volatility and associated weaknesses in the crypto-asset sector," explained the explanation. For example, end customers can react to market-related messages and uncertainties in a way that leads to fast additions and outflows at the bank-which can be reinforced by misleading representations from a company that is connected to FDIC insurance.
After the collapse of FTX and Alameda Research Last year, the Kryptobank Silvergate experienced a rush to customer deposits, with 60 % of its financing disappearing within 2 months. At the end of 2022, she had $ 4.6 billion in cash-$ 4.3 billion in the form of the advocates of the Federal Home Loan Bank, which contributed to warding off the run.
The supervisory authorities also warned of volatility in relation to deposits associated with stable coin reserves. "The stability of such interludes can be related to the stable coin of the stable coin and the reserve management practices of the StableCoin emittent," they said.
in December was forced to temporarily freeze USDC withdrawals due to problems due to problems convert in USDC over a new Yorker Bank, which was closed at the time of a large withdrawal inflow.
What should banks do?
The supervisory authorities recommended the banks to understand the drivers of deposit volatility in their respective shops and the "interdependency" of deposit-related liquidity risks between crypto-asset units. As already explained, deposit fluctuations between crypto units can correlate with similar risk profiles, which creates risks for companies that mainly focus on operating the industry.
The founder of Custodia Bank, Caitlin Long, praised the three supervisory authorities for recognizing "obvious" risks related to crypto banking. Long has long pushed to secure a "main account" for her bank from the Federal Reserve system and submitted a lawsuit against the central bank because she refused to grant her one.
wow-good that the 3 US federal bank supervisory authorities finally recognize the obvious risks for banking #Krypto Cos & has published this instructions today. Yes, banks should keep cash against all associated perspectives #Krypto -The is why #Wyoming #spdi banks cannot be granted 💡https: //t.co/gpbk0u2itk
- Caitlin Long 🔑⚡️🟠 (@caitlinlong_) 23. February 2023
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