Joint Statement on Crypto-Asset Risks to Banking Organizations

Der Fed, FDIC, & OCC ^ | 1/3/23 | Der Fed, FDIC, & OCC

[catnipman]

Federal Reserve System, FDIC, and the Office of the Comptroller of the Currency (OCC) [joint statement]

...

[The Money Quote]: Based on the agencies’ current understanding and experience to date, 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.

...

Banking organizations should be aware of, including:

• Risk of fraud and scams among crypto-asset sector participants.

• Legal uncertainties related to custody practices, redemptions, and ownership rights, some of which are currently the subject of legal processes and proceedings.

• Inaccurate or misleading representations and disclosures by crypto-asset companies, including misrepresentations regarding federal deposit insurance, and other practices that may be unfair, deceptive, or abusive, contributing to significant harm to retail and institutional investors, customers, and counterparties.

• Significant volatility in crypto-asset markets, the effects of which include potential impacts on deposit flows associated with crypto-asset companies.

• Susceptibility of stablecoins to run risk, creating potential deposit outflows for banking organizations that hold stablecoin reserves.

• Contagion risk within the crypto-asset sector resulting from interconnections among certain crypto-asset participants, including through opaque lending, investing, funding, service, and operational arrangements. These interconnections may also present concentration risks for banking organizations with exposures to the crypto-asset sector.

• Risk management and governance practices in the crypto-asset sector exhibiting a lack of maturity and robustness.

• Heightened risks associated with open, public, and/or decentralized networks, or similar systems, including, but not limited to, the lack of governance mechanisms establishing oversight of the system; the absence of contracts or standards to clearly establish roles, responsibilities, and liabilities; and vulnerabilities related to cyber-attacks, outages, lost or trapped assets, and illicit finance.

...

[catnipman]

Reading between the lines of "The Money Quote" above: The Fed, FDIC, & OCC have drawn a line in the financial sand as follows: banks and financial institutions can dabble with crypto if you want, but when it blows up your institution, we won't bail you out AND we've set you up to lose monster lawsuits from your customers, to boot!

[libstripper]

Crypto being based on nothing but twaddle, this was and is the right thing to do.