Banks are Allowed to Work with Crypto Firms: Federal Reserve
- American regulators including the Federal Reserve, the FDIC, and the OCC, issued a statement for banks regarding collaborations with crypto firms.
- The regulators stated that providing services to the crypto industry is neither illegal nor discouraged but caution should be maintained.
- Authorities have not created new policies for banks to follow when providing services to crypto firms and asked institutions to follow the existing guidelines.
- The regulators asked banking institutions to monitor the crypto firms that have opened deposit accounts with them and place risk management strategies.
The regulations and restrictions regarding crypto assets remain uncertain in the United States, and the blockchain firms that are still in their growth phase have been facing a lot of resistance in acquiring support from banking institutions. Interestingly, three of the most important regulators in America recently issued a statement confirming that banks can work with and provide their services to crypto firms.
According to the statement from the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), providing services to the crypto industry is neither illegal nor discouraged. However, the regulators noted several risk management steps that banks should follow and keep in mind when interacting with the crypto sector.
“The statement reminds banking organizations to apply existing risk management principles; it does not create new risk management principles. 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,” read the statement.
It is clear that the authorities have not created new policies for banks to follow when providing services to crypto firms. The regulators noted that there are certain “liquidity risks” that affect the crypto market more than other industries as the industry is still in its development stages which generates an “unpredictability” in the amount of inflows and outflows in the crypto sector.
“The stability of the deposits may be influenced by, for example, periods of stress, market volatility, and related vulnerabilities in the crypto-asset sector,” noted the statement while adding that customer confusion, media reports, and social media might affect the sentiments of the investors which can result in significant amount of outflow or inflow in the asset class.
The regulators explained that the banks that have their financials tied to crypto firms or assets need to “actively monitor the liquidity risks inherent in such funding sources and establish and maintain effective risk management and controls commensurate with the level of liquidity risks from such funding sources.”
The three American regulators advised banks to understand the “direct and indirect” drivers of deposit volatility in their respective businesses and “the extent to which those deposits are susceptible to unpredictable volatility.” Banking institutions were also asked to assess “potential concentration or interconnectedness” between crypto asset entities.
Additionally, the statement said that banks should include “liquidity risks or funding volatility associated with crypto-asset related deposits into contingency funding planning,” while adding that robust due diligence and monitoring of crypto firms that open deposit accounts with the banks must be done.
It is also crucial to note that the founder of Custodia Bank, Caitlin Long, praised the regulators for their statement. As reported last year by BitcoinWisdom, the Federal Reserve was sued by Custodia on the claims that the Federal Reserve Board of Governors and Federal Reserve Bank of Kansas City have impeded its business by delaying the application process for a master account by 19 months.
Long also recently criticized authorities in Washington, DC, for turning a deaf ear to her warnings about potential fraudulent cryptocurrency organizations.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
