The three major regulatory agencies in the United States issued a joint statement, stating that they will not create new rules and that banks should manage crypto-related liquidity risks using existing principles.

The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) have issued a joint statement emphasizing the liquidity risks associated with certain funding sources related to cryptocurrencies and effective ways to manage such risks. The statement reminds banking institutions to apply existing risk management principles, stating that regulators will not introduce new regulations and will not prevent banks from providing banking services to any specific type or category of customers in accordance with laws or regulations.

Liquidity Risk

The statement emphasizes liquidity risks associated with virtual currencies and related industry participants, including the unpredictability of the scale and timing of deposit inflows and outflows that may pose liquidity risks to banking institutions. In certain situations, certain funding sources provided by entities related to cryptocurrencies may pose significant risks to the liquidity of banking institutions, such as:

• Deposits provided by entities related to cryptocurrencies to their customers. The stability of such deposits may depend on the dynamics of customers or the cryptocurrency industry, rather than just the banking institutions' direct counterparties in entities related to cryptocurrencies. The stability of such deposits may be influenced by market fluctuations, vulnerabilities in the cryptocurrency industry, and customers' reactions to market events, media reports, and uncertainties related to the cryptocurrency industry. Such uncertainties and false or misleading statements regarding deposit insurance provided by entities related to cryptocurrencies may lead to customer misinterpretation, further exacerbating deposit volatility.
• Deposits constituting reserves related to stablecoins. The stability of such deposits may be related to the demand for stablecoins, holders' confidence in stablecoins, and reserve management practices of stablecoin issuers. Such deposits may be prone to rapid outflows due to unexpected stablecoin redemptions or market turmoil in the virtual asset market.

The statement also reminds industry participants that when a banking institution's deposit funding base is concentrated in entities related to virtual assets that are highly correlated or have similar risk profiles, liquidity risks may further increase.

Response Measures

To address the high liquidity risks associated with cryptocurrencies, banking institutions should actively monitor risks related to these funding sources and establish and maintain effective risk management and control measures to address liquidity risks from these funding sources. Effective practices include:

• Understanding the direct and indirect drivers of deposit behavior by entities related to cryptocurrencies.
• Evaluating the potential concentration or correlation of deposits related to entities related to cryptocurrencies.
• Incorporating liquidity risks or fund volatility related to deposits associated with cryptocurrencies into liquidity contingency plans and conducting stress testing and other asset-liability management and risk management processes.
• Conducting rigorous due diligence and ongoing monitoring of entities related to cryptocurrencies that establish deposit accounts and assessing these entities' statements regarding deposit accounts for their customers to avoid misrepresentations leading to significant outflows of deposits.

In addition, banking institutions must comply with relevant laws and regulations, including applicable brokered deposit rules and submitting required regulatory reports such as the Call Report.