On Thursday, the Federal Deposit Insurance Corporation (FDIC) issued a financial institution letter — a letter sent to CEOs of FDIC-insured banks — requesting that banks should notify their regional FDIC director of their crypto activities. This request applies to both current and future crypto-related activities.
“Crypto-related activities present a new, heightened, or unique credit, liquidity, market, pricing, and operational risks that could present safety and soundness concerns. For example, there are fundamental ownership issues, including whether it is possible for ownership to be clearly validated and confirmed. Further, there are significant anti-money laundering/countering the financing of terrorism implications and concerns related to crypto assets, including reported instances of crypto assets being used for illicit activities” the FDIC said in the official letter.
Because the vast majority of banks — including every national bank — in the U.S. are FDIC-insured, the new requirements mean that nearly all banks with crypto exposure — including Wall Street titans like Bank of America and Goldman Sachs — must now disclose their crypto activities to the regulator.
What this all means: FDIC claims that the measures are necessary to ensure financial stability and consumer protection, however, it also means that they can sanction banks for their cryptocurrency-related activities. As a result, very few American banks can support cryptocurrencies financially. This necessity to notify and consult FDIC about any cryptocurrency-related activity will most likely slow down the existing ones and cut the number of emerging cryptocurrencies.
This may also lead to the rejection of the FDIC insurance by banks. In 2020, there were 4,377 FDIC-insured commercial banks in the United States. The number of such registered banks has been declining since 2000, when it there were over 8,300 FDIC-insured banks in the country. The number of such banks may increase in the near future because not all of them are willing to report and ask permission for every crypto-related activity.
According to the FDIC rules the bank can cancel the insurace if “IDI is no longer in business of receiving deposits (other than trust funds) or institution’s deposits are assumed by an insured credit union.” This means that commercial banks may change their spectre of work into cryptocurrencies and cancel deposit activities.