American banks should be cautious when they accept money from cryptocurrency firms, especially when those firms offer crypto services to the other ones, Reuters reports, citing Michael Barr, the Federal Reserve's vice chair of supervision.
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In a speech on Wednesday, Barr said that the Fed is collaborating with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp to mitigate the risks that crypto firms pose to financial institutions by using the traditional finance system.
"The recent volatility in crypto markets has demonstrated the extent of centralization and interconnectedness among crypto-asset companies, which contributes to amplified stress. While banks were not directly exposed to losses from these events, these episodes have highlighted potential risks for banking organizations," Barr said.
Barr pointed out that the Fed's engagement with financial watchdogs on the matter is "not intended to discourage banks" from offering services for crypto firms, but to make it clear that banks realize all the risks that the crypto market can pose to them.
Barr's remarks come after the acting head of the OCC, Michael Hsu, said that authorities should not chase the idea of regulating the cryptocurrency sector, adhering to high standards in their work.
During a speech at Harvard Law School, Hsu pointed out that federal regulators should rather "learn and adapt intelligently" to ensure safety and fairness in the industry. In his opinion, regulators are subject to FOMO (fear of missing out) in the context of regulating the crypto market.
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