Global financial regulators said digital assets could soon threaten global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system.
Areas of concern include the use of leverage, technological fragilities and liquidity shortages, according to a report Wednesday by the Financial Stability Board. The report also noted concerns such as low levels of investor and consumer understanding of crypto assets, plus risks of money laundering, cyber crime and ransomware.
The logo of the Bitcoin cryptocurrency is reflected in a motorcycle wing mirror in the Mitte district of Berlin, Germany, on Tuesday, Feb. 15, 2022. Waning turbulence and trading volume could spell trouble for crypto markets, where volatility is part of the appeal. Photographer: Krisztian Bocsi/Bloomberg
Krisztian Bocsi/Bloomberg
The rapid evolution and international nature of such assets means authorities should consider “timely and preemptive evaluation of possible policy responses,” the report said. That includes prioritizing cross-border and cross-sectoral cooperation, including speedier information sharing in order to keep pace with crypto-asset developments.
The note of caution is an evolution from the FSB’s previous report published in 2018, which concluded at the time that crypto assets did not “pose a material risk to global financial stability.” The FSB said then that regulators would continue to monitor the asset class on an ongoing basis given “the speed of developments and the existence of data gaps.”
The FSB is composed of representatives from authorities including the European Central Bank, Bank of England and Federal Reserve.
The Federal Reserve withdrew expectations on crypto activity and dollar tokenization, while the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency also withdrew their versions of the guidance.
The Washington, D.C.-area bank reported a significant boost in provisions to cover emerging vulnerabilities in its $1 billion portfolio of office loans.
Tacoma, Washington-based Columbia Banking System said it will buy Pacific Premier Bancorp, accelerating its growth in Southern California by about a decade. The deal is Columbia's second major acquisition in three years.
A cohort of Democratic senators on the banking committee expressed concern over the Department of Government Efficiency's ongoing efforts to cut Federal Deposit Insurance Corp. staff and contracts, saying they worried the efforts could weaken the nation's deposit insurer and expose sensitive bank data if improperly handled.
At a New York Fintech Week event, speakers urged fintechs to better understand the criminal mindset and to use artificial intelligence to detect and thwart fraud.
Federal Reserve Bank of Cleveland President Beth Hammack said the central bank should not let fears of money-market shakiness cause it to stop balance sheet runoff too soon.
