Disclaimer: Based on FDIC's response to Cointelegraph, the article has been updated to confirm that the banks reported a solid Q2 performance by earning a combined net income of $64.4 billion. In addition, FDIC does not expect banks to sell securities that currently stand at unrealized losses of $470 billion.
Economic uncertainty amid geopolitical tensions, rising interest rates and slowing economic growth have put a strain on the United States financial system. As a precautionary measure against a time of economic uncertainty and downside risks, the Federal Deposit Insurance Corporation (FDIC) decided to prioritize five key policies this year, which include evaluating the risks of crypto assets to the banking system.
Addressing the Senate Banking Committee at a recent hearing, FDIC acting chairman Martin J. Gruenberg highlighted the moderate decline in net income of banks in Q1 and Q2 2022 owing to an increase in loan balances and provision expense while stating that no banks failed in the past two years.
With banks reporting $470 billion in unrealized losses and FDIC foreseeing the continuation of this trend, Gruenberg believed banks must cautiously engage in crypto-asset activities. Speaking to Cointelegraph, FDIC spokesperson clarified that:
Unrealized losses are an accounting item that results from rising interest rates causing securities to decline in value (loss). These losses are only realized if the securities are sold prior to the end of their term.
Given the fact that the banking industry is highly liquid, it is unlikely for banks to sell these securities and realize a loss on them. Gruenberg acknowledged the accelerated interest in crypto despite a bear market while confirming FDIC’s intent to better understand the crypto risks with the help of banks:
“The FDIC will continue to work with our supervised banks to ensure that any crypto-asset-related activities that they engage in are permissible banking activities that can be conducted in a safe and sound manner and in compliance with existing laws and regulations.”
This year, the FDIC issued cease and desist orders to cryptocurrency firms spewing misleading statements to investors and parallelly reminded insured banks of the risks that could arise related to such misrepresentations.
In his written testimony, Gruenberg also brought up the numerous crypto ecosystem collapses that have left investors underwater. He further highlighted the importance of stablecoins in trading various crypto–assets and how federal financial regulators plan to carefully assess related policies.
“However, the distributed ledger technology upon which they (stablecoins) are built may prove to have meaningful applications and public utility within the payments system,” Gruenberg concluded.
On Nov. 14, U.S. President Joe Biden confirmed nominating Gruenberg to assume the FDIC Chairman position as part of a five-year term.
Gruenberg has spent his career fighting for consumers and is well equipped to defend the banking system from new & existing threats.— Elizabeth Warren (@SenWarren) November 14, 2022
Under his leadership, I am confident that the FDIC will work to ensure that banks serve the needs of American families, not just bank executives.
Owing to majority control of the Democratic party, Biden may be able to see his pick go through without partisan obstructionism.