US Agencies Promote Old Risk Management for Crypto Liquidity
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US Agencies Promote Old Risk Management for Crypto Liquidity

written by John Murphy | February 26, 2023

The key risks of liquidity have been brought to the spotlight by the joint statement. The risks of liquidity are related to crypto assets and interconnected with the participants of the banking organizations. 

Three federal United Nations revealed the joint statement which voiced out that the banking sector was directed in opposition to creating new risk management principles to counter the risks of the liquidity which are eventually causing the accountability of the crypto asset markets. 

Risk Management

(FDIC) the Federal Deposit Insurance, the Board of Governors of the Federal Reverse, and last but not least the Office of the Comptroller of the Currency (OCC) have all collectively emancipated their statement which is continuously pointing out to the banks so that they can apply for risk management principles when they are going to be addressing the assets that are related to crypto liquidity risks. 

Not only this but also the joint statement that was released also calls attention to the risks of liquidity that are linked with crypto assets and related to participants of the banking organizations. 

Moreover, the risks brought to light upon the apprehension towards the unpredictable scale and the timing related to the deposit of outflows and inflows. 

To put it another way, the three federal agencies are trying to raise the concern related to an event where there will be tremendous purchases or sell-offs that can unsympathetically have an impact on the liquidity of assets which will eventually cause loss for the investors. 

As well as that the agencies are individually bringing light to the two illustrations in order to show that the risks of liquidity are interlinked with cryptocurrencies

  1. The accumulation constitutes stablecoin-related reserves. 
  2. Moreover, the accumulation that is placed by a crypto asset related to the establishment for the resulting gain of the crypto asset that is related to the entity of customers. 

In the beginning, the main point to be noted is that the stability of the prices mainly depends on the behavior of the investor, which can be regulated by the market resilience, stress, and lastly the interlinked vulnerabilities that take place in the crypto sector.  

Furthermore, the second condition of risk is related to the stablecoin demand. For this matter, the joint statement voices out

 “Such deposits can be susceptible to large and rapid outflows stemming from, for example, unanticipated stablecoin redemptions or dislocations in crypto-asset markets.” 

Whilst the three agencies are seeing eye to eye on the matter of banking, organizations are neither forbidden nor discouraged from providing their related bank services as is the law of the land. 

Nonetheless, it is suggested that there should be active monitoring of the risks of liquidity and set up and maintain constructive risk management and have control over the things related to the crypto offerings. 

Lastly, the three agencies issued a joint statement on January 3rd in which they highlighted the risks of the cryptosystem which include fraud, contagion, volatility, and other risks as well.