Regulators Warn Banks on Crypto Risks. It’s the Latest Sign of a Broad Crackdown.
Top federal regulators on Thursday warned banks about the risks of taking deposits from crypto firms, adding similar guidance that some in the digital asset industry have claimed makes it harder to find banks willing to work with them to do business.
In a joint statement, the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency that certain types of deposits held by crypto companies — such as those held for customers and reserves for so-called stablecoins — are susceptible to rapid inflows and outflows, and that banks face the liquidity risks they pose cause need special attention.
Regulators didn’t name specific banks, but some have come under pressure recently after seeing rapid withdrawals from crypto customers. In January, Silvergate Capital (Ticker: SI) announced a bank run that caused deposits to fall by $8.1 billion to $3.8 billion. Signature Bank (SBNY), which last year unveiled a plan to move away from digital assets, announced in the same month that its crypto deposits fell by $12 billion.
Thursday’s statement is the latest sign of a broad crackdown on crypto firms by the federal government. In January, the same banking regulators issued a joint statement, saying they were “carefully reviewing all proposals from banking organizations to engage in activities involving cryptoassets.”
Later that month, the Fed denied crypto-focused Custodia Bank’s request for access to banks’ internal payment systems. The White House has also recently claimed that the crypto industry needs more consumer protections, and the Securities and Exchange Commission has launched enforcement actions against firms offering products they believe should be registered with the agency.
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Thursday’s statement said banks would not be discouraged or restricted from doing business with any industry and that the letter was simply intended to “remind banking organizations to apply existing risk management principles; it doesn’t create new principles of risk management.” But some crypto firms have said it’s becoming increasingly difficult to even open a checking account with some banks. Some venture capitalists say that bank access is now a standard part of due diligence before making a crypto investment.
Analysts have said the perceived crackdown on crypto could create difficulties for token prices and companies like Coinbase Global (COIN), which make money from products like stablecoins and revenue-generating staking services that have recently come under SEC scrutiny .
Raymond James analysts, who gave Coinbase an underperform rating, wrote this week that they are “very concerned about the potential for significant regulatory risk” for the company over the long term.
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Coinbase executives have called on the SEC and lawmakers to provide clearer guidance on what crypto firms must do to comply with the law.
Write to Joe Light at [email protected]