Banks Should Manage Increased Risk From Deposits From Crypto Firms – Fed’s Barr

Oct 12 (Reuters) – Banks that accept deposits from cryptocurrency companies should be aware of increased liquidity risk, especially if firms are heavily interconnected with other digital asset businesses, Michael Barr, the Federal Reserve’s deputy chairman for supervision, said in a speech on Wednesday. .

Barr said the Fed is working with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp to highlight the risks to banks of concentrating their deposits in the crypto industry, warning that banks could experience deposit swings linked to price swings in the broader area. the crypto market.

“The recent volatility in the crypto markets has demonstrated the extent of centralization and interconnection between crypto asset companies, contributing to heightened stress,” he said.

“Although banks were not directly exposed to losses from these events, these episodes have highlighted potential risks for banking organizations.”

Speaking at DC Fintech Week, Barr said bank regulators’ engagement with financial institutions about the risks of accepting deposits from crypto firms is “not intended to discourage banks from providing access” to banking services for crypto companies, but rather to ensure that any risks be reduced appropriately.

Barr’s comments mark his first full comments on cryptocurrency and fintech since taking the top regulatory post at the Fed in July. In the speech, Barr said regulators must balance support for innovation while providing guardrails that protect consumers and guard against systemic risks.

Barr also warned that crypto companies making misrepresentations about deposit insurance could confuse customers, and could lead to increased withdrawals at crypto-aligned banks that offer such services during periods of increased stress.

These comments follow actions the FDIC took in August in which it ordered crypto exchange FTX, along with several other crypto firms, to stop what it called “false and misleading” claims made by an FTX official about whether funds in the company are insured by the company. The authorities.

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Reporting by Hannah Lang in Washington; Editing by Lisa Shumaker and Nick Zieminski

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