US institutions recommend the old risk management principles of cryptocurrency liquidity

It is reported that the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued a statement reminding banks to apply existing risk management principles when dealing with liquidity risks related to cryptocurrencies.

Interpretation of this information:

The recent statement by the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) serves as a timely reminder for banks to adhere to risk management principles while dealing with cryptocurrency liquidity risks.

Cryptocurrency has gained significant popularity as an investment opportunity, and with this, a significant rise in trading activities. However, it’s essential to note that cryptocurrencies are still unregulated, volatile, and prone to market instability.

The statement by the regulators highlights the need for banks to adhere to the “sound risk management principles” that are already in place while managing the liquidity risks associated with cryptocurrencies. The statement cites the following principles:

1. Liquidity risk management principles

Banks are required to establish a liquidity risk management plan and ensure that it aligns with the bank’s overall risk management framework. The plan should identify potential sources of liquidity stress and address significant liquidity risk exposures.

2. Risk governance principles

The risk governance principles require that banks establish an infrastructure that is adequate to identify, evaluate, monitor, and control risks continuously. This infrastructure should also ensure that banks have a clear view of their risk profile, risk appetite, and risk exposures.

3. Accounting, reporting, and disclosure principles

The accounting, reporting, and disclosure principles require that banks report all transactions accurately and transparently. They should also publicly disclose their cryptocurrency-related activities to ensure that all stakeholders are well informed.

The statement provides a clear path for preventing liquidity risks associated with cryptocurrency trading activities. Banks must adhere to sound risk management principles, which include establishing comprehensive liquidity risk management plans, establishing adequate governance frameworks, and accurately accounting and reporting transactions.