US watchdogs issue joint warning to banks over liquidity risks stemming from crypto, stablecoin reserves

U.S. regulators issued a joint statement to banks on Feb. 23 warning of liquidity risks stemming from cryptocurrency-related clients and their deposits, Reuters reported.

The letter was issued by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency and included a warning on stablecoin reserves for the first time in history.

According to the regulators, the statement was issued in the wake of recent events that highlighted volatility issues in the industry and does not mandate any new actions or restrict banks from providing services to a sector.

The watchdogs urged banks to ensure their monitoring tools are up to date and able to ascertain the health of any crypto-related fund or deposit. They added that banks could face increasing outflows from deposits made for the benefit of retail investors and stablecoin reserves.

The regulators added that stablecoins — like cryptocurrencies — are at risk of heavy outflows during times of uncertainty that can lead to unanticipated redemptions on a large scale.