FDIC Warns of Risks of Crypto Assets: Contagion, Fraud & More

Overview

• The Federal Deposit Insurance Corporation (FDIC) is monitoring banks’ exposure to crypto assets due to the presence of fraud and rapid innovation.
• FDIC highlights potential contagion risk, run risk and other vulnerabilities associated with crypto assets.
• It is coordinating with central banking agencies and prepared to engage in supervisory discussions with banks on the matter.

Risks Associated With Crypto-assets

The FDIC has identified several risks associated with crypto-assets that could have a negative impact on US banks, including:

• Fraud
• Legal uncertainties
• Misleading or inaccurate representations and disclosures
• Risk management practices exhibiting a lack of maturity and robustness
• Platform and other operational vulnerabilities
• Contagion risk within the crypto-asset sector resulting from interconnections among certain crypto-asset participants may present concentration risks for banks with exposure to the crypto-asset sector.
< li >Susceptibility of stablecoins to run risk can create the potential for deposit outflows for banks that hold stablecoin reserves.

FDIC’s Plan To Monitor Banks’ Exposure To Crypto Assets The FDIC is working closely with other federal authorities in order to monitor how US banks deal with cryptocurrencies. It is coordinating with central banking agencies, keeping an eye on how they become exposed to cryptocurrencies, and is ready to start “supervisory discussions” with banks on this issue.

Conclusion The FDIC has identified novel and complex risks associated with cryptocurrency that are difficult to assess due to its dynamic nature, rapid pace of innovation, and interconnectedness with parts of the financial system. As such, it is working closely alongside other federal authorities in order to monitor how US banks deal or become exposed to cryptocurrencies, as well as engaging in supervisory discussion if necessary.