The Federal Deposit Insurance Corp. is advising banks to contact it if they are currently engaged in or intend to engage in cryptocurrency-related activities.
The FDIC notes that exposure to crypto assets may pose “safety and soundness hazards, as well as financial stability problems.”
The FDIC, the country’s top banking regulator, said lenders considering dabbling in digital assets should alert the agency of their intentions, and institutions already engaged in such activities should notify the FDIC “promptly.”
FDIC Wants Full Transparency
The FDIC’s guidance letter follows similar directives from the Office of the Comptroller of the Currency, which directed banks in November to seek permission from their local OCC supervisory office before offering custody services or participating in other crypto-related operations.
Both sets of instructions underscored the hazards associated with bitcoin, particularly as banks increasingly participate in digital asset trading.
The OCC modified its Trump-era guidance in November to underline that banks must obtain approval before dealing with cryptocurrency-related operations on behalf of their clients, dramatically tightening the agency’s position toward the burgeoning virtual currency sector.
The memo recommends institutions to “show their ability to perform crypto-related activities safely and securely.”
Crypto total market cap at $1.94 trillion on the daily chart | Source: TradingView.com
Evaluating Safety And Soundness
The majority of the letter is devoted to describing the institutions’ risk considerations, which are divided into three categories: financial stability, safety and soundness, and consumer protection.
Todd Phillips, the Center for American Progress’s head of financial regulation and corporate governance, stated:
“As of now, the authorities are emphasizing that they will not prohibit banks from engaging in crypto-related operations… they simply want to be informed in advance so they can assess and understand whether the activities have repercussions for the bank’s safety and soundness.”
Warning On Systemic Risks
Under Acting Chair Martin Gruenberg’s leadership, the FDIC has issued warnings about the potential for systemic risk from the “rapid entry of… digital asset products into the financial system.”
Gruenberg noted in February that the banking regulator and other relevant organizations are tasked with providing “strong guidance” to the banking industry on how to manage the dangers posed by cryptocurrency.
Additionally, the FDIC request comes as American financial regulators grapple with the growing popularity of cryptocurrencies.
United States President Joe Biden directed government agencies to evaluate the dangers and benefits of various cryptocurrency issues last month, a move widely interpreted as a harsh admission of the potential implications of digital assets’ growing prominence.
Featured image from Medium, chart from TradingView.com