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The Fed, FDIC, and currency comptroller are warning banks about messing with crypto

The Fed, FDIC, and currency comptroller are warning banks about messing with crypto


‘The agencies have significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities.’

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Illustration by Alex Castro / The Verge

Three federal financial agencies put out a joint statement on Tuesday warning banks about the “key risks for banks associated with crypto-assets and the crypto-asset sector.” The statement explains that while banks aren’t wholesale banned or discouraged from providing services to crypto firms, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency believe that issuing or holding cryptocurrency is “highly likely to be inconsistent with safe and sound banking practices.”

The regulators say they’re still figuring out how to deal with banks and crypto, working on a case-by-case basis, and that they’re being “careful and cautious.”

The agencies also stress that “risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system.”

The statement is much stronger than previous ones from the agencies. In November 2021, they announced a “policy sprint initiative” to clarify regulations around crypto. But while that statement did talk about doing things safely and responsibly, a major focus was ensuring that banks didn’t process crypto for criminals.

The Tuesday statement, meanwhile, mainly focuses on the potential risk that comes with crypto. Some of the risks it says “banking organizations should be aware of” are:

  • Risk of fraud and scams
  • “Legal uncertainties related to custody practices, redemptions, and ownership rights”
  • “Significant volatility in crypto-asset markets,” which is compounded by “interconnections among certain crypto-asset participants” that could cause multiple firms to go down as the result of another firm’s failure
  • “Risk management and governance practices in the crypto-asset sector exhibiting a lack of maturity and robustness”
  • The potential for runs on stablecoins, which could hurt banks that hold cryptocurrencies that are supposed to be pegged to fiat currencies like the US dollar

As the statement notes, these concerns aren’t out of the blue; many of them relate to some of the biggest crypto stories from 2022. In May, the Terra stablecoin collapsed, driving its value down to essentially nothing. After that, several other firms, including Three Arrows Capital and Celsius, filed for bankruptcy, followed by the big one — FTX, the exchange whose founder is currently being accused of several flavors of fraud for what he did there.

Each one sent ripples through the crypto ecosystem, leaving other firms damaged or destroyed in their wake. In the background, regulators have been trying to keep up, and NFT theft and Bitcoins have spawned arguments about what it truly means to “own” crypto.

Tuesday's statement says that “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,” but the regulators’ message to banks is clear: think long and hard before you get into crypto or deepen your investment in the space.