: Feds coach banks on managing crypto liquidity crunches

by | Feb 23, 2023 | Stock Market

The three major branches of the federal government that regulate U.S. banks are urging lenders to brush up on their risk-management practices for handling cryptocurrency assets. The move comes as traditional financial institutions such as S&P 500 component Signature Bank
have handled billions in customer withdrawals in the wake of the bankruptcy of crypto company FTX last year and in a climate of volatility in digital-asset prices.

“Certain sources of funding from crypto-related entities may pose heightened liquidity risks to banking organizations due to the unpredictability of the scale and timing of deposit inflows and outflows,” the Federal Reserve System, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency said in a joint statement issued Thursday. The regulators zeroed in on deposits placed by a crypto-asset-related entity that are for the benefit of the crypto entity’s end customers. “The stability of such deposits may be driven by the behavior 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,” the statement said. Regulators warned that risks may be further heightened by deposit-funding base concentrations in crypto-asset-related entities that are highly interconnected or share similar risk profiles. Banks already have risk-management rules and practices in place to address these issues. The Fed highlighted some ways to handle these issu …

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