FDIC to prioritize crypto risk assessment as banks perform poorly in Q2

Economic uncertainty amid geopolitical tensions, rising interest rates and slowing economic growth have put a strain on the United States financial system. Reacting to the massive losses reported by the traditional banks in Q2 2022, the Federal Deposit Insurance Corporation (FDIC) decided to prioritize five key policies this year, which include evaluating the risks of crypto assets to the banking system.

Addressing the Senate Banking Committee at a recent hearing , FDIC acting chairman Martin J. Gruenberg highlighted the moderate decline in net income of banks in Q1 and Q2 2022 owing to an increase in loan balances and provision expense while stating that no banks failed in the past two years.

With banks reporting $470 billion in unrealized losses and FDIC foreseeing the continuation of this trend, Gruenberg believed banks must cautiously engage in crypto-asset activities. He acknowledged the accelerated interest in crypto despite a bear market while confirming FDIC’s intent to better understand the crypto risks with the help of banks:

“The FDIC will continue to work with our supervised banks to ensure that any crypto-asset-related activities that they engage in are permissible banking activities that can be conducted in a safe and sound manner and in compliance with existing laws and regulations.”

This year, the FDIC issued cease and desist orders to crypto firms spewing misleading statements to investors and parallelly reminded insured banks of the risks that could arise related to such misrepresentations.

In his written testimony, Gruenberg also brought up the numerous crypto ecosystem collapses that have left investors underwater. He further highlighted the importance of stablecoins in trading various crypto–assets and how federal financial regulators plan to carefully assess related policies.

“However, the distributed ledger technology upon which they (stablecoins) are built may prove to have meaningful applications and public utility within the payments system,” Gruenberg concluded.

Related: FDIC acting chair says no crypto firms or tokens are backed by agency

On Nov. 14, U.S. President Joe Biden confirmed nominating Gruenberg to assume the FDIC Chairman position as part of a five-year term.

Owing to majority control of the Democratic Party, Biden may be able to see his pick go through without partisan obstructionism.