Since summer 2022, liquidity events have threatened and ultimately forced the bankruptcy and/or fire sale of significant crypto-currency industry players such as Voyager and Celsius. In response to this, on February 23, 2023, the US prudential regulators1 issued a Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities. Further evidence of the mounting risk came less than a month later when liquidity issues related to the FTX collapse overtook FRB-regulated, California state-chartered commercial bank, Silvergate, which announced on March 9, 2023 that it would enter an orderly liquidation process.
The Joint Statement addresses recent liquidity disrupting and “bank-run” behavior by crypto-asset investors that has resulted in volatility in the cryptocurrency markets. While the Joint Statement does not assert new obligations on banking organizations or insured depository institutions, it reminds banks of existing risk management principles and obligations and makes clear that prohibited misleading statements to consumers or investors about the availability of FDIC insurance could exacerbate any liquidity driven bank run. It also serves as a firm assertion of the nexus between allowable but uninsured bank products and the authority of the prudential regulators, and a stark reminder that the FDIC actively monitors the misuse of its trademarks – both its name and logo – and false or misleading claims that an entity or...
Blow the whistle, get paid. A Justice Department bounty program that incentivizes employees to blow the whistle on their employers could lead to more whistleblowing as the Trump administration inte...