- 1 The recent report released by FDIC highlighted novel and complex risks in crypto-assets.
- 2 According to the report on the crypto industry, 2022 experienced significant market volatility.
Earlier this week, the Federal Deposit Insurance Corporation (FDIC) released a risk review 2023 report, in which FDIC also mentioned crypto-asset risk under section-6. According to the report, the crypto-asset sector’s volatility in 2022 exposes vulnerabilities whereas “the risks include fraud, legal issues, operational vulnerabilities, and contagion.”
Crypto Industry Report by FDIC
According to FDIC, the crypto industry experienced substantial market volatility throughout last year that revealed several vulnerabilities within the industry. Yet, its increased growth saw numerous banks express interest in engaging in crypto-asset activities.
Meanwhile, crypto-assets have gained traction as the recently released annual Risk Review by the FFDIC underscores that the allure of these assets comes hand-in-hand with a web of intricate risks.
Moreover, the complex and evolving nature of the industry makes assessing the risks challenging. According to the report, “crypto-asset-related activities can pose novel and complex risks to the U.S. banking system that are difficult to fully assess.”
The report also mentioned the risks that include potential fraud, legal uncertainties, misleading disclosures, underdeveloped risk management practices, operational vulnerabilities, and the danger of contagion due to interconnectedness among crypto-asset participants.
On the other hand, the stablecoins that are susceptible to run risk can create the potential for deposit outflows for banks holding reserves of these assets. Notably, the FDIC and other banking regulators have taken steps to deal with the emerging risks.
More additional updates and statements related to crypto-asset-related activities by banking organizations are expected as part of the FDIC’s ongoing efforts. Recent FDIC’s report follows the collapse of three major banks: Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank – that sent shockwaves through the entire U.S. financial sector.
It must be noted that these banks, known for their pivotal role in serving the U.S. crypto industry succumbed to the complex and unpredictable risks underlying the crypto-asset realm. In this risk review report, cryptocurrency was given a dedicated section for the first time.
The Annual Risk Review reports of FDIC provide a detailed analysis of potential risks facing the U.S. banking system. It also covers a wide range of topics, including credit risk, market risk, operational risk, and emerging risks.
Lastly, the FDIC added that “in coordination with the other federal banking agencies, it continues to closely monitor crypto asset-related exposures of banking organizations.”
As warranted, the Federal Deposit Insurance Corporation will “issue additional statements related to engagement by banking organizations in crypto-linked activities.”
The FDIC also has developed processes to engage in robust supervisory discussions with banking organizations regarding proposed and existing crypto-related activities.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.