The U.S. Federal Deposit Insurance Corporation is concerned by the potential crypto-related risks faced by the banks it oversees.
Federal Deposit Insurance Corporation (FDIC), the U.S. Federal Deposit Insurance Corporation, has written to the banks it oversees, raising concerns about the potential risks associated with crypto activity.
“Crypto related activities could pose significant safety, soundness and financial stability risks as well as consumer protection concerns.” These risks and concerns are growing as crypto-related activities are still not fully understood,” said the FDIC in a letter released yesterday.
The FDIC, a federal agency, provides deposit insurance to commercial and savings banks in the United States. The FDIC is able to help depositors if a bank can’t pay its debts. There were almost 5,000 FDIC-insured banks by 2021.
In a letter, the agency asks all institutions supervised to consider engaging in crypto-related activity to inform the regulator.
These institutions must also indicate their intention by providing all information necessary for the FDIC to contact them regarding any related risks.
The FDIC went on to provide a description–although not an all-inclusive one–of the crypto-related risks it has identified.
Many crypto-related risks were cited by the agency, including financial stability and safety as well as consumer protection and financial crime.
The FDIC letter under “Safety and Soundness” stated that crypto-related activities could pose safety and soundness concerns because they present “new, increased, or unique credit and liquidity risks, market pricing and operational risk.
This section also explicitly mentions financial crime. “There are significant anti-money laundering/countering the financing of terrorism implications and concerns related to crypto assets, including reported instances of crypto assets being used for illicit activities,” the letter states.
FDIC is also concerned by the systemic risk that the crypto market could pose to the wider financial system.
The FDIC stated that a disruption in crypto-asset transactions, or crypto-related activities, could lead to a ‘run on financial assets backing crypto assets or crypto-related actions.”
The FDIC is not the only organization that has raised concerns about crypto and financial stability. In October 2021, the Bank of England also did this.
The letter also raises concerns about consumer protection.
“The FDIC is concerned that consumers might be confused about crypto assets offered by, via, or in conjunction with insured depository institution,” the regulator stated.