The Office of the Comptroller of the Currency called out cryptocurrency in its semiannual report that determines dangers to U.S. banks.
The crypto market has actually gone through 2 heading getting crashes just recently, occasions that acting Comptroller Michael Hsu stated has actually enhanced the firm’s careful technique to digital properties. Last month, an algorithmic stablecoin called TerraUSD triggered markets to topple after collapsing in worth, and Celsius Network previously this month froze withdrawals following a significant market slump.
“They confirm some of our prior thoughts that there are some vulnerabilities and risks in that space that do warrant a cautious and careful approach,” Hsu informed press reporters.
Despite this, the firm’s analysis of the subject stayed mainly comparable to its last danger report, launched 6 months earlier.
The OCC stated that it “continues to engage on an interagency basis to analyze various crypto-asset use cases,” according to the firm’s Semiannual Risk Perspective launched on Thursday. It is likewise seeking to “provide further clarity on legal permissibility, as well as safety and soundness and compliance considerations related to crypto-assets.”
Talks in between banking firms on crypto assistance, nevertheless, have actually been stopped briefly. The Federal Deposit Insurance Corp. has actually quit working on its upcoming assistance for banks that hold crypto properties for their customers, according to a report by Politico Pro and validated by American Banker.
During a call to talk about the danger report, an OCC team member stated the firm continues to have continuous discussions with a variety of other firms. There’s no existing timeline for the OCC to release any crypto-related assistance, the team member stated.
The danger report likewise offered an upgrade on the OCC’s efforts to consist of environment danger in its supervisory structure.
“Current information-gathering indicates that these banks are in the early stages of building out their frameworks,” the report discovered. “OCC large bank examination teams will integrate the examination of climate-related financial risk into supervision strategies and continue to engage with bank management to better understand the challenges banks face in this effort, including identifying and collecting appropriate data and developing scenario analysis capabilities and techniques.”
While the environment danger area is mainly concentrated on big banks, the report does keep in mind that “midsize and community banks are starting to consider the implications of climate-related financial risks based on products, geographies or other potential concentrations.”
The OCC likewise warned banks that increasing rates of interest might bite into earnings. As deposits increased throughout the COVID-19 pandemic, some banks looked for to balance out the dilutive influence on their net interest margin by increasing credit danger or the period of financial investment portfolios. As an outcome, there was a velocity of long-lasting properties on banks’ balance sheets.
“Banks should understand and maintain diligence on how a rising rate environment could impact their risk profiles in light of inflationary concerns and an expected rising rate environment,” the report discovered. “Rising interest rates have significantly decreased and nearly erased unrealized gains in bank investment portfolios. Banks that increased investment portfolio duration to offset NIM compression are likely to continue experiencing declining portfolio valuations as rates and yields rise.”