FOR IMMEDIATE RELEASE
January 5, 2023
Banks Should Heed Fed Warning on Crypto Asset Risks
Washington, D.C. — The Federal Reserve and other banking regulators made the right call Tuesday by issuing a warning regarding the risks that crypto-assets pose to banking organizations. There is widespread volatility, fraud risk, legal uncertainties, unfair and deceptive practices, run and contagion risks, high levels of concentration and interconnections between firms, and poor risk management and governance found throughout the industry – all of which spells danger for investors and consumers alike.
“The Fed’s argument that these risks effectively mean much of the industry’s footprint is inconsistent with safe and sound banking practices should land as a clear call for change to not only crypto firms but also to traditional financial institutions that have dabbled in crypto, hoping to find easy profits while downplaying their investors’ or depositors’ exposure to unwarranted risks,” said Mark Hays, senior policy analyst at Americans for Financial Reform Education Fund.
“That said, an earlier, strong warning to banking institutions might have spurred some crypto financiers and investors to take a second look and helped reduce the financial fallout of this ongoing crypto winter for retail investors and consumers swept up in it,” said Hays.
Members of Congress say they will prioritize the reintroduction of legislation dealing with crypto, such as oversight of stablecoin products. Yet many of these proposals, if based on past versions, would likely make things worse by undermining regulators’ existing authority to regulate crypto and failing to include those comprehensive regulatory measures most likely to promote overall safety and soundness.
When weighing in on these proposals, banking regulators should think twice about lending support to legislative proposals that are likely to fall short and that instead might legitimize an industry that lacks the maturity and robustness needed to avoid calamity and be taken seriously. Instead, all federal financial regulators should double down on exercising their existing authority to protect investors and consumers by reining in the abusive practices in the crypto industry now, before the next crypto domino falls.