Crypto firm deposits pose 'heightened liquidity risks' for banks, Fed's Barr says

Federal Reserve Vice Chair of Supervision, Michael Barr warned that banks taking in deposits from cryptocurrency firms should come to understand the "heightened liquidity risks" involved, he said Wednesday at a Fintech Week 2022 event in Washington, D.C."The recent volatility in crypto markets has demonstrated the extent of centralization and interconnectedness among crypto-asset companies, which contributes to amplified stress," he said in his prepared speech. "While banks were not directly exposed to losses from these events, these episodes have highlighted potential risks for banking organizations."In an effort to help to address those issues and ensure risks are appropriately managed, Barr said the Fed is collaborating with the Office of the Comptroller and the Federal Deposit Insurance Committee. "Looking ahead, there are additional types of crypto-asset-related activities where the Fed may need to provide guidance to the banking sector in the coming months and years," he said. Later in his remarks, Barr highlighted that cryptos are unlikely to become a substitute to fiat currencies like the U.S. dollar due to their exceptional price volatility, though stablecoins, which are digital tokens that represent a more "stable" asset, "have greater capacity to function as privately issued money."Nevertheless, it's vital to form a strong regulatory framework for prudential oversight of stablecoins, as they could pose a risk to fin...