Blockchain for Banking News

FDIC report highlights crypto, DLT risks for banks

FDIC Federal Deposit Insurance Corporation

Yesterday the Federal Deposit Insurance Corporation (FDIC) published its 2023 Risk Review that dedicated two pages to crypto-asset related risks. The report did not mention the failure of Signature Bank in the crypto-asset section, despite some attributing its failure to crypto exposures, while others reject that as a primary cause.

The FDIC also included a sentence stating, “banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.” Identical wording was included in a Federal Reserve announcement last week, following allegations by the crypto community that there’s a policy to de-bank the sector.

While most of the two pages in the FDIC paper focused on bank involvement in crypto, it also mentions participation in broader DLT-based settlement systems or payment systems. The reference is mainly related to a request for banks to notify the regulator if they participate.

Our view is this has impacted the adoption of DLT-based payment systems such as the USDF Consortium. For example, in order to address regulator concerns, the USDF Consortium has had to alter its model to limit participation to banks and migrated to a permissioned blockchain.

Beyond banks, several times during the past year the FDIC has had to issue warnings to crypto companies regarding any claims about deposit insurance. FTX was one of the recipients last August. As of May it had yet to receive a go ahead.

Overall the FDIC report highlights the risks associated with crypto-assets including fraud, weak risk management, operational vulnerabilities and contagion risk. The FDIC says it will issue additional statements about banks engaging in the sector.

Update: the sentences referring to DLT payment networks has been altered.

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