The U.S. Federal Deposit Insurance Corporation (FDIC) flagged escalating risks from cryptocurrencies in its annual review of risks facing the banking industry.
FDIC: Cryptos and Climate Top Risk List for Banks in 2023
Cryptocurrencies present “novel and complex risks” that are difficult to assess amid recent volatility, according to the report. Growth in crypto assets corresponded with more banks expressing interest in crypto activities last year. However, the sector then experienced a crash that exposed vulnerabilities. The FDIC is closely monitoring crypto activities at banks and said additional guidance is likely.
“Part of the difficulty in assessing these risks arises from the dynamic nature of crypto-assets, the crypto marketplace, and the rapid pace of innovation,” the report said. “Some of the key risks associated with crypto-assets and crypto-asset sector participants include those related to fraud, legal uncertainties, misleading or inaccurate representations and disclosures, risk management practices exhibiting a lack of maturity and robustness, and platform and other operational vulnerabilities.”
The news follows a report about Signature Bank’s (SBNY) collapse that discusses the risks involved with crypto assets and the FTX failure. In the SBNY report, a sharp uptick in withdrawals of uninsured deposits due to liquidity risk management is prominently highlighted. The FDIC delved deeply into the chaos within the crypto industry, pinpointing it and the FTX collapse as a significant factor in SBNY’s downfall.
At the same time, the FDIC claims U.S. banks face increasing physical risks from alleged climate change issues as severe weather causes more damage. The FDIC highlights that there were 18 natural disasters in 2022 that each caused over $1 billion in damages, the third most expensive year on record.
“Increased frequency and severity of climate and weather events present challenges and emerging risks to the banking industry,” the report said. “Changes in climate conditions, including [the] increasing frequency and intensity of severe climate and weather events and other natural disasters, will likely pose additional risks.”
What do you think about the FDIC’s 2023 risks report? Share your thoughts and opinions about this subject in the comments section below.
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