Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities
- Source: federalreserve.gov
Takeaway:
Treliant’s Credit Solutions practice comprises former senior financial services risk executives and regulators who combine their extensive experience, qualifications, and know-how to assist financial institutions navigate today’s volatile market and tight liquidity environment. We provide financial institutions consulting support on credit risk management and governance, liquidity and treasury management, portfolio management, climate scenario analysis, loan workouts, and advice on portfolio risk-mitigation strategies due to IRR volatility.
Highlights:
The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) collectively (agencies) have issued a warning statement on the liquidity risks presented by certain sources of funding from crypto-asset-related entities, and some effective practices to manage such risks.
Recent events in the crypto-asset sector have underscored the potential heightened liquidity risks. The statement reminds banking organizations to apply existing risk management principles; it does not create new risk management principles. The statement also highlights key liquidity risks and some effective practices to monitor and appropriately manage those risks.
Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation. The agencies are reminding banks that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices.
The agencies previously issued a formal warned to the banking industry about significant involvement in virtual currencies and contend that banks that rely on crypto activity as a significant portion of their business would draw heightened scrutiny over safety-and-soundness concerns. The agencies will continue to closely monitor crypto-asset-related exposures of banking organizations. As warranted, the agencies will issue additional statements related to engagement by banking organizations in crypto-asset-related activities.