Breaking: The US Fed warns banks of crypto-related liquidity risks
US Fed Crypto News: The US Federal Reserve has warned banks about liquidity risks arising from crypto market instability and related incidents. The warning was part of joint statements by the US Fed, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The Fed highlighted the risks associated with crypto asset-related entities and recommended to banks effective practices to manage them. This statement comes as the country’s regulatory agencies continue to tighten their regulatory framework against crypto-native businesses.
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The U.S. Securities and Exchange Commission recently proposed changes to the rules that govern asset custody by companies from different sectors. This would allow crypto exchanges to adhere to stricter guidelines and provide more evidence of audit by independent auditors. Continue reading.
Two types of risks are associated with cryptocurrency for banks institutions were addressed in the statement. The first is the risk associated deposits made by a crypto-asset-related entity (crypto exchange), on behalf of customers. The second risk is related to deposits that are stablecoin-related reserve deposits. Joint statement recommended ‘effective risk management practices’ that actively monitor liquidity risks. The central bank alerted banks about the possibility that crypto-related deposits could be susceptible to unpredictable volatility on the market.
“The stability and viability of deposits can be affected by market volatility, periods of stress, and other vulnerabilities in the cryptoasset sector. These vulnerabilities may or not be specific to the cryptoasset-related entity.
According to the report, stablecoin demand can be tied to unanticipated redemptions and dislocations in cryptoasset markets.
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