Approach with caution: US banking regulator’s crypto warning
A United States banking industry regulator warned banks of the “emerging risks” of cryptocurrencies saying the sector should take a “cautious approach” and seek permission in some cases when engaging with crypto or crypto firms.
Citing “dislocations” in the crypto market over 2022 the Office of the Comptroller of the Currency (OCC) highlighted what it said were “several key risks” of crypto in its Dec. 8 Semiannual Risk Perspective for Fall 2022 report.
Its three main concerns are that “stablecoins may be unstable,” the crypto industry lacks mature risk management practices and has a high risk of contagion due to the “high degree of interconnectedness.”
Check it out! The @USOCC reported the key issues facing the federal banking system in its Semiannual Risk Perspective for Fall 2022. Read more at https://t.co/CcfoiQM8xe pic.twitter.com/0WnAt5psXU
The space’s lack of “consistent or comprehensive regulation” and the volatility of crypto along with the increased range of firms offering “bank-like products and services” using crypto and tokenized assets were also cited as concerns, which the OCC believes raises questions regarding financial stability.
The depeg and collapse of the TerraClassicUSD (USTC) algorithmic stablecoin in May was given as an example of stablecoins’ “run risk,” and how asset-backed stablecoins also saw minor depeg events as a result.
It highlighted stablecoin backings have “incrementally evolved” since, but believes most “remain susceptible to run risk.”
Discussing risk management the OCC said practices at crypto firms were maturing but are “not yet robust” with firms appearing “unprepared for the stresses and surprises” over the past year that saw losses for millions of investors, it added:
The crypto market
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