US Regulators Keeping Close Eyes on Banks With Crypto Exposure

Three U.S. finance regulators issued a statement to banks with crypto exposure. They want to align crypto offerings from banks with safe and sound banking practices. The statement says they’ll neither prohibit nor discourage banks from engaging with the crypto sector.

Three U.S. regulators, including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), have issued a joint statement highlighting the key risks associated with crypto assets. This is the case given the events of the last year like the collapse of FTX, Luna, Three Arrow Capitals and various other crypto lending protocols.

The statement went on to say that the regulator will not ban or prevent banking institutions from getting involved in the crypto industry. However, they will closely monitor banks with crypto risks.

US regulators want to ensure that crypto asset risks are not transferred to the banking system. To do this, they not only monitor banks with crypto risks, but also examine banks’ future proposals to engage in crypto-related services.

Many prominent US banks are obsessed with providing cryptocurrency-related services. In April 2022, US investment bank Goldman Sachs created a Bitcoin-backed cash loan product. BNY Mellon, the world’s largest custodian, announced in October that it will offer custodial services for crypto assets.

Regulators Want Safe and Sound Banking Practices

The regulator’s goal is to align banks’ activities related to crypto assets with safe and sound banking practices. Encryption services provided by banks should comply with consumer protections, legal permissions and other applicable laws and regulations.

According to the regulators, the agencies believe 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.