The Federal Deposit Insurance Corporation (FDIC) released its report on August 14, 2023. As per reports, digital asset activities create a unique risk to the financial stability of the Bank of the United States.
It is the first time cryptocurrency has had its dedicated section in the Federal Deposit Insurance Corporation’s annual risk review, citing it as a “novel and complex” risk.
The key risks to banks mentioned in the Risk Review from the FDIC, and were noticed when there was an increment in banking crypto activities. “The FDIC has been generally aware of the rising interest in crypto-asset-related activities through its normal supervision process,” as written in the Risk Review report.
The crypto-asset sector experienced significant market volatility in 2022, but more information is needed to understand the risk. “Crypto-asset-related activities can pose novel and complex risks to the U.S. banking system that are difficult to fully assess,” it said.
It noted several significant risks, such as the uncertainty about the legal status of cryptocurrencies, the likelihood of fraud, and the potential contagion and concentration risk as a result of the interconnectedness of the cryptocurrency industry.
The risks also arose because of the dynamic nature and rapid innovation of cryptocurrencies. The FDIC added, “susceptibility of stablecoins to run risk can create the potential for deposit outflows for banks that hold stablecoin reserves.”