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The U.S. Federal Deposit Insurance Corporation (FDIC) has written to the banks it supervises, raising concerns over the risks involved in crypto activity.
“Crypto-related activities may pose significant safety and soundness risks, as well as financial stability and consumer protection concerns. Moreover, these risks and concerns are evolving as crypto-related activities are not yet fully understood,” the FDIC said in a letter published yesterday.
The FDIC is a government agency that provides deposit insurance for savings and commercial banks in the United States. If a bank cannot pay its debts, the FDIC can help cover losses to its depositors. There are nearly 5,000 FDIC-insured banks as of 2021.
The agency’s letter requests all supervised institutions considering engaging in crypto-related activities to notify the regulator of their intent to do so.
In signaling their intent, these institutions are also asked to “provide all necessary information that would allow the FDIC to engage with the institution regarding related risks.”
The FDIC went on to provide a description—although not an all-inclusive one—of the crypto-related risks it has identified.
FDIC and crypto risks
The agency cited many crypto-related risks, ranging from safety and financial stability to consumer protection and financial crime.
Under “Safety and Soundness,” the FDIC’s letter said crypto-related activities present “new, heightened, or unique credit, liquidity, market, pricing, and operational risks that could present safety and soundness concerns.”
The same section also makes explicit reference to financial crime. “There are significant anti-money laundering/countering the financing of terrorism implications and concerns related to crypto assets, including reported instances of crypto assets being used for illicit activities,” the letter states.
The FDIC is also concerned about how the crypto market may pose systemic risks to the broader financial system.
“A disruption in crypto-asset transactions or crypto-related activities could result in a ‘run’ on financial assets backing a crypto asset or crypto-related activity,” the FDIC wrote.
The FDIC isn’t the first organization to cite concerns over crypto and financial stability. The Bank of England did so too in October 2021.
Finally, the letter raises concerns about consumer protection.
“The FDIC is concerned about the risk of consumer confusion regarding crypto assets offered by, through, or in connection with insured depository institutions, as consumers may not understand the role of the bank or the speculative nature of certain crypto assets,” the regulator added.