Banks Limit Interaction with Crypto Firms, Regulators Not Friendly

• Banks in the traditional finance sector are exercising caution before interacting with companies operating in the crypto space.
• Recent statements from banking regulators have pointed towards a not-so-friendly stance towards crypto firms.
• The Federal Reserve Board issued a statement last month which informed insured and uninsured banks that they would be subject to the same limitations on crypto asset related activities.

Banking Sector’s Stance on Crypto Firms

As per an S&P report, banks have started limiting their interactions with crypto firms due to recent sentiments of banking regulators. Although companies like Coinbase will continue operations as normal, banks in the traditional finance sector are cautious before interacting with those operating in the crypto space. Regulatory security and crackdown by authorities are on the rise due to a string of bankruptcies and collapses in this industry last year.

Regulators‘ Guidance Statements

The report provided a timeline of guidance issued by regulators for banks that deal with crypto assets. The Office of the Comptroller of the Currency (OCC) letter issued in 2021 required national banks and savings institutions to disclose their intent to engage in certain crypto activities and obtain an NOC for it. Recently, the Federal Reserve Board issued a statement informing insured and uninsured banks that they would be subject to the same limitations on crypto asset related activities.

Governor’s Warning

Christopher Waller, Governor of the Federal Reserve, warned during his speech at Global Interdependence Center Conference: „A bank engaging with crypto customers would have to be very clear about the customers‘ business models, risk-management systems and corporate governance structures to ensure that the bank is not left holding the bag if there is a crypto meltdown.“

Why Is Caution Necessary?

The fallout from numerous bankruptcies and collapses in this sector has led agencies teaming up together for regulation and enforcement purposes. Thus, banking regulators view digital assets as a threat to both banking industry as well as broader traditional finance sector which has resulted into increased caution among financial institutions when dealing with cryptocurrency firms or customers associated with them.

Conclusion

Despite Coinbase being relatively unaffected currently due to its strong customer base and trustworthiness among other exchanges, banks still remain cautious regarding interactions between themselves or their customers with any entity associated with cryptocurrencies or digital assets until strict regulations are put into place by U.S agencies concerning these matters