US banking regulators step up warnings on crypto market risks

THE top US banking regulators stepped up their warnings to banks on the liquidity risks tied to stablecoin-related reserves and other funding sources from crypto firms.

“Recent events in the crypto-asset sector have underscored the potential heightened liquidity risks presented by certain sources of funding from crypto-asset-related entities,” the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance said in a statement on Thursday (Feb 23).

The regulators underscored that deposits that include stablecoin-related reserves can be susceptible to large and rapid outflows in crypto markets, including unanticipated redemptions or dislocations.

Stablecoins are often pegged to the US dollar and are intended to hold a set value. Some are underpinned by a matching reserve of assets, such as cash and bonds. BLOOMBERG