Jan 3, 2023 - Economy

The Fed, OCC and FDIC warn banks about crypto

A view of The Federal Reserve Bank of New York Building in downtown Manhattan on December 29, 2022.

The Federal Reserve Bank of New York Building in downtown Manhattan. Photo: Roy Rochlin/Getty Images

Digital assets present eight particular dangers that banks should be aware of, according to three financial regulatory agencies.

Driving the news: In a joint statement Tuesday, major banking regulators, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation highlighted "key risks associated with crypto-assets."

What they're saying: "Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices," the joint statement reads.

In the weeds: The eight specific issues listed include the enormous volatility of crypto assets, and the fact that stablecoins could face a run risk.

  • Another is the danger of contagion, something we've seen following the collapse of Three Arrows Capital in June.
  • Another is the lack of maturity in crypto business's governance structures, which the attorney overseeing the FTX bankruptcy has alleged.
  • Meanwhile, some of the other dangers noted have long been features of the normal economy, such as scams and misrepresentations.

Of note: Silvergate, the bank most associated with cryptocurrency firms — and which has specifically set its sites on stablecoins — declined to comment on the news to Axios.

  • Block One, the company behind the EOS blockchain, and its founder, Brendan Blumer, recently became a major shareholders in Silvergate.

Quick take: While the statement notes that "banking organizations are neither prohibited nor discouraged from providing banking services," it's a safe bet that regulated entities under these three agencies will be even more reluctant to provide financial services to crypto firms.

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