US Fed, other regulators jointly warn banks of liquidity risks from crypto-related assets

livemint.com:

Amidst vulnerabilities, illiquidity and bankruptcies that cryptocurrencies currently face, the US Federal Reserve along with other regulators have warned banks over liquidity risks that are related to certain sources of funding from crypto-asset-related entities. In a joint statement on Thursday, the regulators reminded banks to apply existing risk management principles.

The board of governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) (collectively, the agencies) issued a statement about the liquidity risks presented by certain sources of funding from crypto-asset-related entities, and some effective practices to manage such risks.

In the statement, the regulators reminded banking organizations to apply existing risk management principles --- which means it does not create new risk management principles.

However, banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.

Jointly, the regulators highlighted key liquidity risks associated with crypto-assets and crypto-asset sector participants which banks should be aware of.

Firstly, it would be deposits placed by a crypto-asset-related entity that is for the benefit of the crypto-asset-related entity’s customers (end customers).

The regulators said, the stability of such deposits may be driven by the behaviour of the end customer or crypto-asset sector dynamics, and not solely by the crypto-asset-related entity itself, which is the banking organization’s direct counterparty.

Also, the stability of deposits can be influenced for example by periods of