A new study by the United States’ Federal Deposit Insurance Corporation (FDIC), a service similar to Brazil’s Fundo Garantidor de Créditos (FGC), presents an analysis of the risks associated with the cryptocurrency sector and their implications for the future. American banking system.
The focus section in Chapter 6 specifically addresses the risks related to digital assets and provides insight into the complexity.
The year 2022 was marked by great volatility in the market, revealing several vulnerabilities, says the study published on August 14, 2023.
As the cryptocurrency industry has expanded, banking institutions have shown more interest in getting involved in activities related to digital assets.
In the United States, it is worth remembering, major institutions such as JPMorgan and BlackRock are showing interest in cryptocurrencies and especially in bitcoin.
For the first time in history, the FDIC’s annual banking risk study listed cryptocurrencies.which caught the attention of the global community.
This is because the study points to the risk of contagion in the cryptocurrency sector, due to the interconnections between certain market participants. Such a scenario could lead to concentrated risks for banks exposed to the sector.
In addition, the vulnerability of stablecoins to the risk of bank runs could lead to an outflow of deposits from institutions that hold stablecoin reserves.
To address these challenges, the FDIC and other federal banking agencies are taking strict measures to closely monitor cryptocurrency activity at banking institutions.
What are the new risks facing the banking system? Today we published our risk assessment for 2023, which takes a detailed look at the key developments and risks facing banks, including a new section focused on crypto asset risk. Read more ➡️ https://t.co/Ri442S9ERo. pic.twitter.com/5bY2VHuDof
— FDIC (@FDICgov) August 14, 2023
US banking authorities are stepping up supervision of crypto assets, according to research by the FDIC
The recent study conducted by the US FDIC highlights robust measures taken by banking authorities to address the emerging risks associated with crypto assets. The focus is on the measures taken by the agency in view of the growing interest of banking institutions in activities related to crypto assets.
While observing the growing interest of some banking institutions in crypto activities, the FDIC resorted to its usual oversight procedures. However, with the intensification of this interest, the agency recognized the need to deepen the understanding of the risks associated with such activities.
For example, in April 2022, the FDIC issued Financial Institution Letter 016-2022, requiring institutions under its oversight to report on their past or planned cryptocurrency activities.
This communication included various activities related to cryptocurrencies, such as acting as a custodian, holding reserves in stablecoins, issuing and trading digital assets, among others.
As of 2022, more than 85 entities have been subject to regulatory action for misrepresentations, including letters to companies falsely claiming eligibility for FDIC insurance. In the investigation, the agency says it is working towards regulation of the cryptocurrency market and will continue to monitor problems at companies.
Regulators unite to combat cryptocurrency risks for banks
In January 2023, the FDIC, the Federal Reserve, and the OCC issued a joint statement emphasizing the need for safety and soundness in crypto-asset-related activities while complying with regulations, including consumer protection.
In February 2023, the same coalition released a joint statement on liquidity risks for banking organizations in the face of vulnerabilities in the cryptocurrency market. The FDIC, in line with other regulatory bodies, closely monitors banking institutions’ exposure to crypto assets.
Finally, the study points out that joint initiatives demonstrate the determination of regulatory authorities to ensure the stability and safety of the financial system in the face of the growing influence of cryptocurrencies. The study concludes by indicating that by striking a balance between robust regulation and fostering innovation, the proactive approach aims to protect consumers and support the health of the US banking system.
Source: Live Coins
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
