US FDIC Says Risks Related to Crypto Assets Novel, Complex

A leading US financial regulator warned that crypto-assets and related activities present critical risks to the US banking system and warrant closer supervision.

In a significant move, the Federal Deposit Insurance Corporation’s (FDIC) annual risk review has included a dedicated section for cryptocurrency. The report acknowledged the “novel and complex” risks associated with digital assets, which are increasingly interesting to banks.

The engagement in crypto-asset-associated activities may present unprecedented and intricate hazards to the banking system of the United States that are arduous to evaluate thoroughly, FDIC noted.

The Risk Review 2023 report emphasized the key risks that banks may face due to crypto activities, marking a pivotal moment for the industry, according to Cointelegraph.

“The FDIC has generally been aware of the rising interest in crypto-asset-related activities through its normal supervision process,” it wrote.

According to the report, the FDIC disclosed several key risks associated with cryptocurrencies. These risks included the uncertain legal status of cryptocurrencies, the potential for fraudulent activities, and the possibility of contagion and concentration risks due to the interconnectedness of crypto businesses.

The report also highlighted the challenges of assessing risks in this space due to cryptocurrencies’ dynamic nature and rapid innovation. Furthermore, the FDIC expressed concern about the susceptibility of stablecoins to run-risk, which could expose banks holding stablecoins to deposit outflows.

In the aftermath of the March banking crisis, the FDIC released a report detailing several banks’ collapse or forced closure within a week. Among the casualties were Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank, all notable for providing banking services to the US crypto industry. The report sheds light on the impact of the crisis and its effects on the cryptocurrency sector.