FDIC Expresses its Concerns Over the Risk Crypto Poses to Financial Stability
The crypto space has been getting lots of attention lately from several regulatory agencies. The nature of cryptocurrencies and the possible negative impacts has raised so much attention. Recently, the US Federal Deposit Insurance Corporation raised its concerns regarding the risks of cryptocurrencies, especially Bitcoin and Ethereum.
FDIC Financial Institution Letter
Being a major banking regulator in the US, FDIC has instructed several institutions regarding cryptocurrencies’ possible dangers to the economy. On April 7, the banking regulator released a financial institution letter to address institutions’ engagement in cryptocurrency-related activities. The letter includes the risks of the digital currency on institutions, individuals, and the overall economy.
Some of the risks addressed in the letter include financial instability, risks to customers, and breach of safety. The letter also addresses the difficulty of applying laws guiding consumer protection due to the ever-evolving crypto activities. Right from its inception, Federal Deposit Corporation has stated its goal of enhancing the stability of the US financial system and has announced that it will only be supporting safe and positive innovations as long as they comply with the rules and regulations and are not detrimental to consumers.
On the other hand, the agency has raised its concern over the evolving cryptocurrency and the increasing related activities whose effect has become difficult to explain due to the limited experience.
FDIC Demands Crypto-related Activities Be Reported
Following the release of the financial institution letter on the 7th of April, the bank regulator has announced that all banking institutions should take note of their crypto-related activities. Any institution under its directives must inform the bank regulator of their engagement in any crypto activities. The institutions must also provide FDIC with any information they demand. This will allow the regulator to examine the consumer protection requirement, safety, and possible implications on the financial system.
This new directive has made it necessary for banks like MicroStrategy that have collateral in Bitcoin and has also planned to buy millions of dollars worth of Bitcoin to notify the FDIC of such actions and activities that have to do with cryptocurrency. It is the responsibility of the FDIC to give reviews.
While all these regulations are going on, analysts have noticed a drop in the cryptocurrency market below $2 trillion. The crypto market has seen some drawbacks, and its major assets are following the bearish trend.
Now it is only important that banks inform the FDIC of their new plans regarding their activities in the crypto market. This is because cryptocurrency has several implications which must be examined. To make things easier, the bank regulator has announced that its insured banks must inform them of their plans regarding their activities in the crypto market. Any firm must inform of their plans before executing them.
While there has been no record of any damages, regulators have taken precautionary measures to keep the financial market stable and consumers protected.