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FDIC: Crypto poses significant safety risks and ‘financial stability concerns’

A top US banking regulator has warned the institutions under its supervision of the risks and concerns of engagement with cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH).

The Federal Deposit Insurance Corporation (FDIC) issued a financial institution letter (FIL) titled ‘Notification of Engaging in Crypto-Related Activities’ on April 7. In it, the agency focuses on the risks that, according to it, crypto may pose for both institutions and individuals, highlighting that:

“Crypto-related activities may pose significant safety and soundness risks as well as financial stability concerns.”

The letter also stated that:

“Crypto-related activities present risks to consumers, and insured depository institutions face risks in effectively managing the application of consumer protection laws and regulations to new and changing crypto-related activities.”

FDIC, whose mission is “to maintain stability and public confidence in the nation’s financial system,” has explained that it supports “safe and sound” innovations, “in compliance with laws and regulations, and fair to consumers.”

However, it expressed concern over the rapidly evolving digital assets and related activities, when the “risks of this area are not well understood given the limited experience with these new activities.”

On top of that, the regulator has prompted the banking institutions to report any crypto-related activities, stating: 

“An FDIC-supervised institution that engages, or intends to engage in, any crypto-related activities should notify the FDIC and provide any information requested by the FDIC that will allow the agency to assess the safety and soundness, consumer protection, and financial stability implications of such activities.”

The above means that every FDIC-insured bank, such as MacroStrategy which has recently loaned $205 million with collateral in Bitcoin and then an additional $190 million to buy more Bitcoin, is urged to report such activities or future plans involving crypto to the FDIC for review and feedback.

Meanwhile, the total cryptocurrency market capitalization has dropped slightly below $2 trillion, recording some stagnation and a slightly bearish trend along with its major assets over the past seven days, according to CoinMarketCap data.

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