Breaking: US Fed Warns Banks Of Crypto Related Liquidity Risks

US Fed Crypto News: The US Federal Reserve warned the country’s banks of liquidity risks stemming out of crypto market instability and mass sell off linked incidents. The warning was part of a joint statement from the US Fed, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency. Highlighting risks from crypto asset related entities, the Fed recommended to the banks some effective practices to manage such risks. The statement comes at a time when the country’s regulatory institutions continue to tighten the regulatory framework against crypto native businesses.

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The U.S. Securities and Exchange Commission (SEC) had recently proposed changes to rules that governed asset custody by companies in various sectors. This would bring in crypto companies like exchanges to follow stricter guidelines and provide more proof of audit from independent auditors. Read More..

US Fed Statement On Crypto

The statement addressed two types of risks associated with cryptocurrencies for banking institutions. The first one being the risk associated with deposits placed by a crypto-asset related entity (crypto exchange) on behalf of its customers. The second risks is linked to deposits that constitute stablecoin-related reserves. The joint statement recommended some ‘effective risk management practices’ to actively monitor the liquidity risks. The central bank alerted the banks about the chances of crypto related deposits being susceptible to unpredictable volatility in the market.

“The stability of the deposits may be influenced by, for example, periods of stress, market volatility, and related vulnerabilities in the crypto-asset sector, which may or may not be specific to the crypto-asset-related entity.”

Demand for stablecoins can be linked to unanticipated redemptions or dislocations in crypto-asset markets, the report said.

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