The number of banks in the U.S. under the Federal Deposit Insurance Corporation (FDIC) dabbling with crypto assets has continued to surge, indicating a strong demand for assets such as Bitcoin and Ether as well as crypto-related services.
On this note, a report published on Feb 16 by the FDIC Office of Inspector General (IOG) revealed that as of January 2023, approximately 136 banks were either involved or planning to venture into crypto-related businesses.
“According to FDIC data, as of January 2023, the FDIC was aware that 136 insured banks had ongoing or planned crypto asset related activities,” read the report.
Notably, these banks have arrangements with third parties that allow bank customers to buy and sell crypto assets due to the lack of clear regulations. Banks also provide account deposit services as well as custody and lending services to crypto exchanges.
As per the report, approximately 52 million Americans, or 16% of the population have bought cryptocurrencies. Of these, 46,000 lost over $1 billion to cryptocurrency scams since 2021. Considering that the FTX collapse exposed the crypto exchange’s close business connection with about 11 banks -raising suspicions about potential involvement in alleged wire transfer fraud- the report highlighted the need for protection.
“The FDIC should work with other regulators to provide clarity regarding the regulation of digital assets. Further, the FDIC should ensure that its examinations, policies, and procedures address consumer risks regarding digital assets, including the relationship of deposit insurance and digital assets,” the report added.
The report by IOG comes after a spate of meltdowns by high-level crypto firms leading to increased calls for regulatory oversight. Although the FDIC has maintained a fairly sceptical stand on cryptocurrencies, its attitude has become more critical. In several communications, the regulator has cautioned banks to stay away from digital assets, citing the potential risks that they pose to the wider financial system.
On Friday, the regulator issued a joint statement alongside the Federal Reserve and the Office of the Comptroller of the Currency directing banks to apply existing risk management principles when dealing with crypto assets or stablecoins deposits.
It is important for banking organizations that use certain sources of funding from crypto-asset-related entities…to actively monitor the liquidity risks inherent in such funding sources and establish and maintain effective risk management and controls commensurate with the level of liquidity risks from such a funding source,” the statement read.