During his speech at DC Fintech Week, the FED governor in charge of oversight warned financial institutions about the risks of crypto. However, he said bank regulators do not want to discourage banks from accepting corporate deposits. On the contrary, they ensure that there is no risk.
Digital assets: from “ new risks » that banks must manage
According to the head of banking supervision in the United States, some digital assets pose a threat to banking stability and the financial system. According to Michael Barr, banks that accept deposits from crypto companies must indeed consider liquidity risks. The latter increase when companies are highly interconnected with other asset companies. Whereas if we refer to the recent volatility of the cryptocurrency markets, the interconnection between companies is expanding a lot.
In his speech, Michael Barr warns financial institutions about the risks of fluctuating deposits. These are caused by price fluctuations in the crypto market. He reiterated that the losses related to these events may not reach the banks directly. However, these present themselves as possible risks for banking organisations.
Crypto banking in focus of regulators
Regulators, the FED, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, are today working together to craft a regulatory framework for crypto. They spare no effort to control access to the banking services of cryptographic companies.
To explain this invasion, Michael Barr first talks about the protection of customers and finances. Then, he asserts that the interventions of regulators are not intended to ban banks from offering their services to crypto companies. The actions carried out are rather aimed at making banks aware of the “new inherent risks” linked to digital assets.
Michael Barr has incidentally hinted that there may be additional guidance from regulators on crypto-related banking. He also confirmed the words of Jerome Powell and Lael Brainard (Chairman and Vice Chairman of the Federal Reserve) that the central bank has not yet decided on the creation of a digital dollar. One thing is certain, however: the launch of FedNow will take place between May and June of next year.
In his speech, Michael Barr makes it very clear that the commitment of regulators is not intended to discourage banks from collaborating with crypto companies. However, the warnings he issued may deter financial institutions from providing access to their services to crypto companies.
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