On October 12, Michael Barr, Vice Chair for Supervision of the Federal Reserve System, issued a warning to banks that are federally regulated to exercise extreme caution when providing services to cryptocurrency companies.
Previously Fed reserve vice chair Barr at DC Fintech Week, on October 12, 2018, said that the Fed was working hard to achieve the correct balance between fostering innovation in the cryptocurrency sector and regulating the dangers associated with it.
In light of the recent crypto market contagion, a Fed official recently issued a call to action to federally regulated banks, urging them to verify if they have adequate precautions in place to mitigate risks associated with cryptocurrency before engaging in business with cryptocurrency companies.
Vice Chair Barr said that while banks are not directly exposed to the losses that occur in the cryptocurrency market, the liquidity risks that are connected to variations in deposit amounts may undermine the banks’ capacity to maintain their financial stability.
Barr made it clear that the purpose of the statement was not to dissuade banks from providing their goods and services to cryptocurrency companies, but rather to remind them to carefully manage the risks associated with doing so.
In a similar vein, the acting director of the OCC, Michael Hsu, had previously warned U.S. banks to handle their operations linked to cryptocurrencies with extreme prudence in order to avoid any contagion from spreading into the primary economy.
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