The top US banking regulators stepped up their warnings to banks on the liquidity risks tied to stablecoin-related reserves and other funding sources from crypto firms.
(Bloomberg) — The top US banking regulators stepped up their warnings to banks on the liquidity risks tied to stablecoin-related reserves and other funding sources from crypto firms.
“Recent events in the crypto-asset sector have underscored the potential heightened liquidity risks presented by certain sources of funding from crypto-asset-related entities,” the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. said in a statement on Thursday.
The three watchdogs pointed to deposits that include stablecoin-related reserves as notably susceptible to unpredictable large and rapid outflows in crypto markets.
Stablecoins are used as key on- and off-ramps between crypto and traditional currencies. They’re usually pegged to another currency, most often the US dollar.
Some stablecoins are underpinned by a matching reserve of assets such as cash and bonds. The agencies also warned banks to scrutinize such deposits from crypto companies when they’re associated with those firms’ customers.
Regulators have taken an increasingly aggressive position after the collapse of crypto exchange FTX. They’re concerned that crypto-related risks could eventually affect the stability of the country’s banking system.
In Thursday’s statement, they also cautioned banks about the risk of customer confusion around potential “inaccurate or misleading representations of deposit insurance by crypto firms.”
The Fed, OCC and FDIC reminded banks to apply existing risk-management principles in handling crypto-related deposits.
–With assistance from Allyson Versprille.
(Updates story with regulators’ comments and details starting in fourth paragraph.)
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