The U.S. Federal Deposit Insurance Corporation, or FDIC, has issued a notice informing the public that it “does not insure assets issued by non-bank entities, such as crypto companies.”
In a Friday notice, the FDIC informed banks in the United States that they needed to assess and manage risk in third-party relationships with crypto businesses. The government agency said that while deposits at insured banks were covered up to $250,000, no such protection applied “against the default, insolvency or bankruptcy of any non-bank entity, including crypto custodians, exchanges, brokers, wallet providers or other entities that appear to imitate banks.
“Some crypto companies have misrepresented consumers that crypto products are eligible for FDIC deposit insurance coverage or that customers are insured by the FDIC if the crypto company fails,” said the FDIC. “These types of statements are inaccurate and may confuse consumers about deposit insurance and harm consumers in certain circumstances.”
Today, we issued a notice to FDIC-insured financial institutions about FDIC deposit insurance and the risks of dealing with #crypto– heritage companies. Read more ➡️https://t.co/rXHAoR9197. pic.twitter.com/KSAf2nmh9J
— FDIC (@FDICgov) July 29, 2022
The notice followed a Thursday letter from the FDIC’s Enforcement Division, in which Assistant General Counsel Jason Gonzalez and Seth Rosebrock claimed crypto lender Voyager Digital made “false and misleading” statements regarding insured deposits. The legal team suggested that the FDIC would not insure either Voyager customers or funds deposited on the platform against the bankruptcy of the company.
“Customer confusion can lead to legal risks for banks if a crypto firm, or other third-party partner of an insured bank it deals with, misrepresents the nature and scope of deposit insurance . In addition, misrepresentation and customer confusion could lead worried consumers with policyholder-bank relationships to transfer funds, which could lead to liquidity risk for banks and, in turn, could potentially lead to risks. for profits and capital.
The FDIC began insuring deposits in 1934, starting with coverage up to $2,500. Since then, the government agency has reported no depositors “lost a penny” at an FDIC-insured bank, despite more than 9,000 such institutions failing before 1940. The FDIC reported that 561 insured banks failed between 2001 and 2022, peaking at 157 in 2010.