Application of old management principles for crypto liquidity?

Three US federal agencies issued a strong statement regarding crypto liquidity. They recommend that the banking sector not create new risk management principles to counter liquidity risks resulting from vulnerabilities in the crypto-asset market.

CoinTelegraph on Twitter relaying the statement which reminds banks to apply old risk management principles.

What are the old management principles that the statement talks about?

The three agencies referred to are: The Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC). We learned by CoinTelegraph that they issued a statement for the banks. She reminds them to apply existing risk management principles when dealing with crypto liquidity risks.

The statement dwells on two points in particular to outline crypto liquidity risks. First, deposits placed by a crypto-asset-related entity for the benefit of the crypto-asset-related entity’s clients. Second, deposits that constitute reserves tied to stablecoins.

These deposits may be susceptible to large and rapid outflows resulting from, for example, unplanned redemptions of stablecoins or disruptions in crypto-asset markets.. Can we read in the statement. The three agencies do not object to banks providing crypto services. They recommend active monitoring of crypto liquidity risks.

Can cryptocurrencies sink banks?

The trio of agencies tries above all to prevent a dysfunction of banks due to cryptocurrencies. In this regard, they say: It is important that risks in the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system. »

To help banks manage crypto risk effectively, the trio offers 4 key practices. First, it is about carrying out strong due diligence and monitoring of crypto assets. Next, the integration of liquidity risks, the assessment of the interdependence between crypto offerings. Finally, the understanding of the direct and indirect factors of the potential behavior of the deposits.

This is not the first time the three agencies have issued a statement on cryptocurrencies. Unlike other more aggressive agencies, these three make proposals in the direction of evolution. Perhaps they are the answer to the maligned lack of leadership in crypto regulation in the United States.

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