Crypto-assets and their related activities present key risks to the United States banking system and warrant closer supervision, warns a leading U.S. financial regulator.
For the first time, cryptocurrency was given a dedicated section in the Federal Deposit Insurance Corporation’s (FDIC) annual risk review, calling digital asset risks “novel and complex.”
The Aug. 14 Risk Review 2023 report highlights what the FDIC argues are key risks to banks — and comes after it noticed an increased banking interest in crypto activities.
What are the emerging risks facing the banking system? Today, we published our 2023 Risk Review which takes a comprehensive look at 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
“The FDIC has been generally aware of the rising interest in crypto-asset-related activities through its normal supervision process,” it wrote.
However, with “significant market volatility in 2022,” more information is needed to understand crypto-related risks, it said.
Some of the key risks it identified included the uncertainty about the legal status of cryptocurrencies, the likelihood of fraud and possible contagion and concentration risk due to the interconnectedness of crypto businesses.
The FDIC also said the dynamic nature and rapid innovation of cryptocurrencies increased the difficulty of assessing risk in the space.
Another concern was the run-risk susceptibility of stablecoins which the FDIC said could expose stablecoin holding banks to deposit outflows.
Related: US bank reveals $166M in crypto holdings: Q2 earnings report
The FDIC’s report follows the March banking crisis which saw Silicon Valley Bank
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