Feb 27, 2023

Regulators Urge Banks to Address Crypto Liquidity Risks

Feb 27, 2023 | Banks, News

A group of U.S. regulatory agencies released a joint statement this week, calling on the nation’s banks to be vigilant to potential liquidity risks associated with cryptocurrency. The statement urged financial institutions to focus on implementing tools and systems to monitor crypto asset funds, and noted that crypto-related deposits are subject to volatility.

The agencies involved in issuing the statement include the U.S. Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC). The agencies were reportedly responding to several events that have taken place in the crypto sector in recent months—events that have once again cast a spotlight on the volatility risks associated with digital assets.

Regulators also included a mention of stablecoins in their new guidance, noting that those assets could also be subject to volatility even though they are backed by other assets that can be used to meet any withdrawal needs. According to the statement, those stablecoin reserves could face the same sort of rapid deposit outflows during periods of extreme volatility in the digital currency markets.

It is important to note that this statement was designed to be guidance for banks, rather than any form of new mandate. According to those regulators:

“The statement reminds banking organizations to apply existing risk management principles; it does not create new risk management principles. 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.”

This latest statement is yet another reminder from U.S. regulators that their agencies are continuing to scrutinize the banking industry’s involvement with crypto activity.

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