FDIC Report Cryptocurrencies Pose Unique Risks to US Financial Stability

Author: JESSE COGHLAN, COINTELEGRAPH; Translation: Song Xue, LianGuai

A major financial regulatory agency in the United States has warned that cryptocurrency assets and related activities pose significant risks to the US banking system and require closer supervision.

The Federal Deposit Insurance Corporation (FDIC) has included cryptocurrency in a dedicated section for the first time in its annual risk review, describing the risks of digital assets as “novel and complex.”

The risk assessment report dated August 14, 2023, highlights the main risks that the FDIC believes banks are facing, and it was released after noticing an increase in banks’ interest in cryptocurrency activities.

“The FDIC generally recognizes the growing interest in cryptocurrency-related activities through its normal supervisory processes,” it wrote.

However, it stated that due to “significant volatility in the market in 2022,” more information is needed to understand the risks associated with cryptocurrency.

“Activities related to cryptocurrency may pose novel and complex risks to the US banking system that are difficult to fully assess.”

Some key risks identified include the uncertainty of the legal status of cryptocurrencies, the possibility of fraud, and the potential for contagion and concentration risks.

The FDIC also stated that the dynamic nature and rapid growth of cryptocurrencies add to the difficulty of assessing risks in this area.

Another concern is the run risk sensitivity of stablecoins, with the FDIC stating that this could expose banks holding stablecoins to the risk of deposit outflows.

The FDIC’s report was released after the banking crisis in March, during which Silicon Valley Bank, Silvergate Bank, and Signature Bank all collapsed or were forced to close within a week.

These three banks were known for providing banking services to the US cryptocurrency industry. Following panic selling after Circle, their issuer, disclosed the inability to redeem $3.3 billion in reserves from the bank, the closure of SVB led to the detachment of USDC from the US dollar.

The FDIC and other US regulatory agencies intervened to support these banks and sold their assets to other financial institutions.

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