The United States Federal Deposit Insurance Corporation, or FDIC, has issued a notice notifying the public that it “does not insure assets issued by non-bank entities, such as cryptocurrency companies.”
In an announcement on Friday, The FDIC recommended that US banks should assess and manage the risks of third-party relationships with cryptocurrency companies. The government agency said that while deposits at insured banks were covered up to $250,000, such protections “against the default, insolvency, or bankruptcy of any non-bank entity, including crypto custodians, exchanges, brokers, providers, did not apply.” of wallets or other entities that seem to imitate banks.
“Some cryptocurrency companies have misrepresented to consumers that the products they offer are eligible for FDIC deposit insurance coverage or that customers are FDIC insured if the cryptocurrency company fails,” the FDIC said. “These types of statements are inaccurate and can cause consumer confusion about deposit insurance and harm consumers in certain circumstances.”
Today, we issued an advisory to FDIC-insured financial institutions on FDIC deposit insurance and the risks of dealing with #crypto-asset companies. Read more âž¡ï¸ https://t.co/rXHAoR9197. pic.twitter.com/KSAf2nmh9J
— FDIC (@FDICgov) July 29, 2022
The notice followed a Thursday letter from the FDIC’s controlling division, in which Deputy CEOs Jason Gonzalez and Seth Rosebrock they claimed that crypto lender Voyager Digital had made “false and misleading” claims about insured deposits. The legal team suggested that the FDIC would insure neither Voyager clients nor funds deposited on the platform against the firm going bankrupt.
“Customer confusion can lead to legal risks for banks if a cryptocurrency firm, or another third-party partner of an insured bank they are dealing with, misrepresents the nature and extent of deposit insurance. In addition, misrepresentations and customer confusion could cause concerned consumers who have relationships with insured banks to move their funds, which could lead to liquidity risk for banks and, in turn, could lead to earnings risks and capital”.
The FDIC began insuring deposits in 1934, starting with coverage up to $2,500. Since then, the government agency has reported that no depositor has “lost a dime” at an FDIC-insured bank, even though more than 9,000 such institutions failed before 1940. The FDIC reported that 561 insured banks failed between 2001 and 2022, peaking at 157 in 2010.
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