FED Survey: Banking Institutions Do Not See Crypto Products as a Priority

  • The Federal Reserve Board is keeping tabs on the crypto space.

The cryptocurrency market has enjoyed more mainstream attention than it first did a couple of years ago, but despite that, many banking institutions believe it will take a while before crypto-related products are seen as a priority.

This opinion was revealed in a survey carried out by the Federal Reserve Board of the United States. According to the study, top officials at major banks in the country disclosed that distributed ledger technology and crypto services were not a key focus as per their growth strategy for the next two years.

About 80 banks took part in the survey and about 56% of the respondent noted that crypto products were not a priority while 27% said their organizations saw crypto services as medium or high priority in their development plan for the next few years.

When asked about the impact of cryptocurrencies on liquidity management procedures, bank executives gave similar responses, with many stating that the technology will probably not matter in the next two years or two to five years from now. Some banks said they were actively watching the situation, and will act as needed.

As of May 2022, the senior financial officers who represented banks in the poll held nearly 75% of the entire reserve holdings in the banking sector. Of those polled, 34 were foreign banking institutions and 46 were domestic banks.

The Federal Reserve Board plays a huge role as a financial authority in the United States. The bank regulator will most likely be in charge of issuing a digital dollar if such were to ever be approved. Like many regulatory organizations around the world, the Federal Reserve Board has kept close eyes on the cryptocurrency industry and recently released a report on the recent crisis in the market.

The report which was titled, “Crypto-Assets and Decentralized Finance through a Financial Stability Lens,” pointed out that the recent volatility exploded major flaws in the crypto financial system. The report claims that the crypto financial system turns out to be prone to the same vulnerabilities as banks despite being hailed as a fundamental shift from conventional banking. The crypto industry is also faced with issues such as leverage, liquidity transformation, and settlement. The board claims making sure the regulatory framework includes crypto finance is crucial to the country’s financial stability agenda.

A part of the report read,

We are closely monitoring recent events where risks in the system have crystallized and many crypto investors have suffered losses. Despite significant investor losses, the crypto financial system does not yet appear to be so large or so interconnected with the traditional financial system as to pose a systemic risk

The Federal Reserve Board said the already known volatile nature of cryptocurrencies is a huge source of concern. According to the report, cryptoassets have lost value and have shown to be highly associated with riskier equities and with risk appetite in general, debunking assertions that they are an inflation hedge or a statistically independent asset class.

The Terra crash allegedly serves as a reminder of just how quick a run can occur on an asset that is supposed to maintain a stable value in relation to fiat money. The demise of Terra and a number of other unbacked algorithmic stablecoins in the past is typical of famous runs in history. The report concluded that financial engineering and new technologies cannot transform risky assets into safe ones on their own.

Lawrence Woriji Verified

Lawrence has covered some exciting stories in his career as a journalist, he finds blockchain-related stories very intriguing. He believes Web3 will change the world and wants everyone to be a part of it.

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