Fed, top US regulators, IMF issue new warnings about risks
Top US regulators, including the Federal Reserve as well as the International Monetary Fund, issued new warnings and recommendations on Thursday about various cryptocurrency-related policies and risks.
The US regulators – the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency – issued a statement on Thursday morning urging banks that use funding from crypto firms to monitor liquidity and maintain strong risk management practices to prevent runs.
They warned that deposits banks host from crypto firms may be affected by periods of stress in markets, volatility and external factors beyond the control of crypto firms. The agencies encouraged banks to use existing risk management tools to protect against runs, but they stopped short of creating and requiring new risk management rules.
Among the recommendations:
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Understand what can affect deposits from crypto firms and how exposed these deposits are to volatility.
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Consider the correlation between deposits from crypto assets and liquidity risk
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Build a contingency plan and stress test liquidity
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Monitor crypto deposit accounts in banks regularly
The statement came as Atlanta Fed President Rafael Bostic said Thursday that he hopes crypto does not replace the proven components of the traditional payment and banking systems.
Speaking with former Kansas City Fed President Esther George at the Atlanta Fed, Bostic said he agreed with George’s comments that she doesn’t see cryptocurrencies “displacing any of these more tired and true skins at this point.”
“I hope that’s true, because there’s a lot of volatility. And that volatility – to the extent that it enters the asset base of institutions – I think it’s going to be very difficult to manage, and we just have to think about that and how we manage it in the future, Bostic said.
The “right step”
JPMorgan analyst Steven Alexopoulos said the joint statement by the Fed and others indicates heightened regulatory concerns about the risks of serving the crypto industry and is likely to limit banks’ use of those deposits in terms of deployment for loans and held-to-maturity securities.
“Instead, these deposits are likely to be held highly liquid in cash and available-for-sale securities, limiting the attractiveness of these deposits,” Alexopoulos wrote in a note to clients.
The regulators’ actions come after a sharp decline in crypto-related deposits following a crisis of confidence from customers with digital assets in the bank Silvergate, which is losing liquidity.
Sen. Sherrod Brown (D-OH), chairman of the Senate Banking Committee, which held a hearing last week on the FTX crash, called the agencies’ statement and actions the “right step” to give banks clarity and protect investors as lawmakers consider. new regulations for crypto.
“As we continue to learn the full extent of the fallout from the crypto industry collapse, it is imperative that we use our existing financial safeguards to protect consumers and our economy from crypto risk,” Brown said.
Meanwhile, the International Monetary Fund released a paper on Thursday urging member countries not to give crypto-assets official currency or legal tender status. The recommendation is part of a long list that provides guidance to IMF member countries on guidelines for managing crypto-assets and implications for monetary and fiscal policy.
The IMF also proposes establishing clear guidelines for the tax treatment of crypto, developing and enforcing regulatory requirements that apply to all crypto market players, establishing a framework to allow national agencies to cooperate in overseeing crypto, putting in place international agreements for crypto oversight and monitoring the impact of crypto assets on the stability of the international financial system.
