The Fed has warned U.S. banks of liquidity risks arising from the instability of the cryptocurrency market and from mass sale-related events. You can see the Bitcoin (BTC) price and detailed market data here.
US central bank issues statement on liquidity risks related to cryptocurrencies
The Fed has warned US banks about the volatile nature of the cryptocurrency market and the liquidity risks arising from bulk sale-related events. The warning was part of a joint statement by the US Federal Reserve (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Currency Supervision (OOC).
Emphasizing the risks posed by crypto-related entities, the Fed recommended some effective practices for banks to manage such risks. The announcement comes at a time when US regulatory agencies continue to tighten the regulatory framework against crypto companies. As you follow on Kriptokoin.com, the New York Department of Financial Services recently banned the printing of Binance-branded stablecoin BUSD.
In addition, another US regulator, the SEC, has recently proposed changes to the rules governing the asset custody of companies in various industries. This decision requires crypto companies such as exchanges to comply with stricter rules and provide more proof of reserve from independent auditors.
“Certain sources of funding from crypto-related entities may pose high liquidity risks to banking institutions due to the unpredictability of the scale and timing of deposit inflows and outflows,” the statement released on Thursday said.
Fed addresses two types of risks
The Fed’s February 23 statement addressed two types of risks associated with cryptocurrencies for banking institutions. The first is the risks associated with deposits deposited by a crypto-related asset (crypto exchange) on behalf of its clients. The second risk is linked to the deposits that make up the stablecoin-related reserves. In the joint statement, some ‘effective risk management practices’ were recommended for active monitoring of liquidity risks. The central bank warned banks about the chance that crypto-related deposits could be susceptible to unpredictable volatility in the market:
The stability of deposits can be affected by, for example, periods of stress, market volatility and related vulnerabilities in the cryptocurrency industry, whether or not they are asset-specific or not.
The report stated that stablecoin demand may be linked to unexpected redemptions or relocations in the cryptocurrency markets. The agencies also warned banks about stablecoins as the stability of their deposits may depend on their demands, the trust of their holders, and the reserve management of the stablecoin issuer. Noting that banks must comply with applicable laws and regulations, they urged banking institutions to actively monitor liquidity risks, establish and maintain effective risk management.
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