FDIC Issues Warning to US Banks, Says Crypto Assets Could Disrupt Traditional Finance System

The Federal Deposit Insurance Corporation (FDIC) is issuing a warning to US banks over the safety of crypto assets.

In a new statement, the regulatory agency says that crypto-related activities may pose significant financial risks to both institutions and consumers.

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“The FDIC is issuing this letter to address the engagement by FDIC-supervised institutions in crypto-related activities. Crypto-related activities may pose significant safety and soundness risks, as well as financial stability and consumer protection concerns.

Moreover, these risks and concerns are evolving as crypto-related activities are not yet fully understood.”

According to the FDIC, the most common problems currently associated with crypto assets are ownership validation issues, confusion surrounding consumer protections and their use in illicit activities such as money laundering.

Another key concern noted by the regulatory body is the potential for digital assets to disrupt the wider financial system.

“A disruption in crypto-asset transactions or crypto-related activities could result in a ‘run’ on financial assets backing a crypto asset or crypto-related activity.

Like other runs, this could create a self-reinforcing cycle of redemptions and fire sales of financial assets, which, in turn, could disrupt critical funding markets.”

The FDIC is asking all banks under their jurisdiction that either engage in crypto-related activities or are considering doing so to notify the FDIC of their intentions.

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“The FDIC is requesting all FDIC-supervised institutions that are considering engaging in crypto-related activities to notify the FDIC of their intent and to provide all necessary information that would allow the FDIC to engage with the institution regarding related risks.

Any FDIC-supervised institution that is already engaged in crypto-related activities should promptly notify the FDIC.”

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