Banks Should Manage Heightened Deposit Risks From Crypto Firms – Fed’s Barr

Oct 12 (Reuters) – Banks that take deposits from cryptocurrency companies should be aware of heightened liquidity risks, particularly if the companies are heavily interconnected with other digital asset businesses, Michael Barr said. vice chairman of oversight of the Federal Reserve, in a speech Wednesday. .

Barr said the Fed was working with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp to highlight the risks for banks to concentrate their deposits in the crypto industry, warning that banks could experience fluctuations of deposits related to price fluctuations in the broader crypto market.

“Recent volatility in crypto markets has demonstrated the extent of centralization and interconnectedness among crypto-asset companies, which helps to amplify stress,” he said.

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“Although banks were not directly exposed to losses related to these events, these episodes highlighted potential risks for banking organizations.”

Speaking at DC Fintech Week, Barr said banking regulators’ engagement with financial institutions on the risks of taking deposits from crypto firms is “not intended to discourage banks from providing access “to banking services for crypto companies, but rather to ensuring that all risks are appropriately mitigated.

Barr’s comments mark his first comprehensive remarks on cryptocurrency and fintech since taking over the Fed’s top regulatory job in July. In his speech, Barr said regulators must balance support for innovation while providing safeguards that protect consumers and guard against systemic risks.

Barr also warned that crypto companies misrepresenting deposit insurance can confuse customers and can lead to increased withdrawals at crypto-aligned banks that provide such services during times of stress. increased.

The comments follow action taken by the FDIC in August in which it ordered FTX, along with several other crypto firms, to halt what it called “false and misleading” claims. that an FTX official had made to find out if the company’s funds were government-secured.

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Reporting by Hannah Lang in Washington; Editing by Lisa Shumaker and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

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