Cryptocurrency Assets Could Disrupt the Traditional Financial System: FDIC Issues Warning to US Banks

The Federal Deposit Insurance Corporation (FDIC) warns U.S. banks about the security of cryptocurrency assets.

Cryptocurrency-related activities may pose significant financial risks to both financial institutions and consumers, the regulatory agency stated in a new statement.

To address the involvement of FDIC-supervised institutions in crypto-related activities, this letter has been issued by the FDIC.” Security, soundness, and consumer protection may all be jeopardized as a result of cryptographic activities.

These risks and concerns are also evolving as crypto-related activities are not yet completely understood.”

Ownership validation issues, confusion over consumer protections, and illicit activities like money laundering are among the most common issues with crypto assets, according to the Federal Deposit Insurance Corporation.

Additionally, regulators are concerned that digital assets could have a negative impact on other parts of the financial system.

In the event that crypto-asset transactions or crypto-related activities are disrupted, a ‘run’ on the underlying financial assets could result.

A self-reinforcing cycle of financial asset redemption and fire sales could disrupt critical funding markets,” as has been the case with previous runs.

The Federal Deposit Insurance Corporation (FDIC) is requesting that all banks under its jurisdiction that engage in or are considering crypto-related activities notify the FDIC.

FDIC-supervised institutions are being asked by the FDIC to notify the FDIC of their plans to engage in crypto-related activities and to provide all necessary information that would allow the FDIC to engage with the institution regarding related risks.

Cryptocurrency-related activities should be reported to the FDIC immediately by any FDIC-supervised institution.”