US Federal Reserve, Other Agencies Continue to Warn Banks About Crypto

The U.S. Federal Reserve and other regulators issued a crypto warning for the banking system Tuesday, though the statement doesn’t extend any new policies about how traditional lenders deal with digital assets.

“Given the significant risks highlighted by recent failures of several large crypto-asset companies, the agencies continue to take a careful and cautious approach related to current or proposed crypto-asset-related activities and exposures at each banking organization,” according to the statement from agencies that also included the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC).

Issuing digital tokens or holding them on their own balance sheets “is highly likely to be inconsistent with safe and sound banking practices,” the agencies argued. The three regulators said they have “significant safety and soundness concerns with business models that are concentrated in crypto-asset-related activities.”

The U.S. banking regulators have maintained a careful resistance to cryptocurrency getting a significant toehold in the traditional financial system. They’ve allowed some custody operations among lenders, and the OCC briefly extended provisional charters to crypto trust banks, but the rules at the agencies now hold that a lender must get approval in advance before getting into any new business involving this sector.

Last month, the heads of the three agencies agreed with the rest of the Financial Stability Oversight Council to include cryptocurrencies as a danger area in the group’s annual report that flags risks to the financial system.