Crypto-friendly banks mismanaged traditional risks, FDIC head tells Senate hearing

The recently-started phenomena of crypto-friendly banks has been a source of increasing scrutiny for the US banking system, but FDIC head Martin Gruenberg thinks traditional risks have been mismanaged. The much-anticipated testimony to the Senate on Tuesday was wide-ranging, and for the most part positive.

Gruenberg began his testimony by addressing the topic of crypto-friendly banks. “It all started with FTX a few months ago,” he said. The FDIC head went on to discuss how the FTC recently greenlighted a number of banks to offer crypto custody services and the potential implications of that action.

Gruenberg also addressed the “unprecedented demand” for capital and liquidity resulting from the ongoing COVID-19 pandemic, noting that these demands call for different approaches. He told the senators that the FDIC is exploring ways to support these higher demands while also addressing traditional risks, such as cyber security.

Gruenberg emphasized that the American banking system remains sound, noting that commercial banks had an excess of $524 billion in capital in the second quarter of 2020 — the highest since the FDIC was established.

The testimony drew a positive reaction from those in attendance, who appreciated the fact that a government official was responding directly to their questions. They also praised Gruenberg’s thoughtful insights on the current state of banking and the potential implications of crypto-friendly banks.

To conclude, Gruenberg noted that the emergence of crypto-friendly banks is an opportunity for banks to find new ways to succeed. He also said that the FDIC will be closely monitoring the situation and will remain focused on ensuring that traditional risks are not mismanaged.

It’s clear that crypto-friendly banks are an issue that is being taken seriously by the US government. As Gruenberg noted, the FDIC is taking a close look at the situation and is committed to ensuring that traditional risks are not mismanaged. It will be interesting to see what the future holds for crypto-friendly banks in the US.

Featured image is from Coindesk.