US Federal Reserve, other agencies warn banks about crypto risks

Written by Joy Rice

On Tuesday, the U.S. Federal Reserve and other financial regulators issued a warning to the banking system about the risks associated with cryptocurrencies. In a statement, the agencies, which also included the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC), cautioned that they were taking a “careful and cautious approach” to banks’ involvement with digital assets. The statement emphasized that issuing digital tokens or holding them on their own balance sheets “is highly likely to be inconsistent with safe and sound banking practices.” The regulators expressed “significant safety and soundness concerns” about business models that are heavily concentrated in cryptocurrency-related activities.

While the U.S. banking regulators have generally resisted allowing cryptocurrencies to gain a foothold in the traditional financial system, they have allowed some banks to offer custody services for digital assets. The OCC also briefly granted provisional charters to cryptocurrency trust banks, but the rules at these agencies now require banks to obtain approval before engaging in any new business involving cryptocurrencies.

Last month, the heads of the three agencies joined the rest of the Financial Stability Oversight Council in including cryptocurrencies as a potential risk to the financial system in their annual report. This latest warning appears to be in line with their ongoing efforts to be cautious about the involvement of traditional lenders in the cryptocurrency sector.

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