FDIC Points to Cryptocurrency Ventures as Peril to Stability of US Banking System

Crypto News– In its annual risk review for 2023, the Federal Deposit Insurance Corporation has highlighted the potential risks posed to the U.S. banking system by cryptocurrency-related activities.

FDIC Points to Cryptocurrency Ventures as Peril to Stability of US Banking System

The FDIC, a regulatory body responsible for insuring deposits and overseeing financial institutions in the United States, dedicated a comprehensive section to outline the risks associated with crypto assets within the broader spectrum of economic, credit, market, and operational risks faced by banks.

Following a turbulent crypto market in 2022, which witnessed the insolvency of major crypto companies like Terraform Labs, BlockFi, Celsius, Three Arrows Capital, and FTX, triggering a ripple effect leading to the collapse of crypto-friendly banks such as Silvergate and Silicon Valley Bank, the FDIC noted that it had been closely monitoring the growing interest in crypto-asset-related activities as part of its regular supervisory processes. The FDIC emphasized that the dynamic and rapidly evolving nature of crypto assets introduces novel and intricate risks that are challenging to comprehensively evaluate.

Among the significant risks outlined in the report were concerns related to fraud, legal uncertainties, deceptive representations or disclosures, underdeveloped risk management practices, and vulnerabilities in cryptocurrency platforms. The report also highlighted the potential for interconnectedness within the crypto-asset sector to create contagion risks for banks with substantial exposure. Notably, the review underscored the risk of deposit outflows from banks holding reserves in stablecoins due to potential stablecoin runs.