Fed, OCC and FDIC warn banks against crypto

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The Federal Reserve Bank of New York Building in midtown Manhattan. Photo: Roy Rochlin/Getty Images

Digital assets pose eight particular dangers that banks should be aware of, according to three financial regulatory agencies.

Driving the news: In a joint statement on Tuesday, top banking regulators, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation highlighted “key risks associated with cryptoassets.”

What they say: “Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as the primary crypto-assets that are issued, stored, or transferred on an open, public and/or decentralized network, or similar system is very likely to be incompatible with safe and sound banking practices,” the joint statement read.

In the Weeds: The eight specific issues listed include the huge volatility of crypto assets and the fact that stablecoins could face a leak risk.

Another is the danger of contagion, something we saw after the collapse of Three Arrows Capital in June. Another is the immaturity of the crypto firm’s governance structures, which FTX’s bankruptcy attorney alleged. Meanwhile, some of the other dangers noted have long been features of the normal economy, such as scams and misrepresentation.

Of note: Silvergate, the bank most associated with cryptocurrency businesses and which has specifically set its sites on stablecoins declined to comment on the Axios news.

Block One, the company behind the EOS blockchain, and its founder, Brendan Blumer, recently became major shareholders of Silvergate.

Quick take: While the statement notes that “banking organizations are neither prohibited nor discouraged from providing banking services”, it’s a safe bet that regulated entities under these three agencies will be even more reluctant to provide financial services. to crypto companies.

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