Could the banking industry decide to exclude cryptocurrencies?

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For the first time ever, US regulators have issued a joint warning to banks about the risks associated with cryptocurrencies, following the massive bankruptcies of several major crypto companies.

Concerned about the place of crypto in the banking sector, the three US regulators – Federal Reserve Bank (EDF), said Federal Deposit Insurance Corporation (FDIC) andOffice of the Comptroller of the Currency (OCC) – have published a joint statement on the risks associated with crypto-assets for banking institutions.

They specifically stated as follows,

“The events of the past year have been marked by significant volatility and exposure of vulnerabilities in the crypto-asset industry. These events highlight a number of key risks related to crypto-assets and industry players. Banking organizations should be aware.”

The “main risks” in question include:

  • scams and scams,
  • legal uncertainties regarding property rights, custody practices and settlements,
  • significant volatility,
  • lack of maturity and consistency in terms of risk management and governance practices,
  • risks associated with open, public and/or decentralized networks,
  • the sensitivity of stablecoins to the “banker”,
  • and the risk of contagion resulting from interconnections between certain participants, particularly through “unclear arrangements in loans, investments, financing, services and transactions”, which may also present concentration risks for banking organizations exposed to the sector.

The fear of regulators lies in the possibility that risks from the crypto sector that cannot be controlled or mitigated will migrate to the banking sector. As a result, regulators say the sector is now under increased scrutiny:

The agencies monitor banking organizations that may be exposed to risks arising from the crypto-asset industry and carefully review any plans by these organizations that involve significant engagement in activities related to crypto-assets.”

The “cautious and cautious approach” taken by the agencies in this regard has been prompted by the recent bankruptcies of several major crypto companies.

And though not mentioned by name, FTX is definitely one of those companies. Stock market explosion and sister company Alameda Research Last November sent massive shockwaves through the crypto industry and beyond. Their influence continues to be felt New news surface almost every day.

No formal ban in force

And while nothing prohibits or discourages banking organizations from providing banking services to customers of “any specific category or type, as directed by law or regulation,” regulators said:

“Issuing or holding ownership of crypto-assets that are issued, stored or transferred in an open, public and/or decentralized network, or similar system, is most likely not in accordance with safe and sound practices banking. Additionally, the agencies have significant safety and soundness concerns related to business models that dominate the crypto-asset-related business or have significant exposure to the crypto-asset industry.”

All that being said, regulators will monitor all banking organizations’ exposures to crypto-assets and issue additional statements on the matter as needed, the statement said.

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