On Tuesday, January 3, top US bank regulators issued a fresh warning to lenders over the risks of getting involved with crypto activities.

Top US banking regulators - The Federal Reserve, the Office of the Comptroller of the Currency (OFOC), and Federal Deposit Insurance Corp. shared their concerns over exposure to digital assets. The officials from the respective agencies said that risks that are beyond manageable shouldn't migrate to the banking system in any case.

These warnings come after major liquidity crisis situations emerged in the crypto space over the last few months. The collapse of the crypto exchange FTX led to a million customers losing their crypto investments. Also, the total loss, in this case, is estimated to be over $8 billion.

“The events of the past year have been marked by significant volatility and the exposure of vulnerabilities in the crypto-asset sector. It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” the agencies said.

They further added that the FTX implosion had a minimal impact on the broader financial system. However, the incident has been enough to put American regulators on their toes to prevent any such further calamities.

All the banking watchdogs said that they would continue to “take a careful and cautious approach related to current or proposed crypto-asset-related activities and exposures at each banking organization.”

Federal Regulators Identify Few Risks With Crypto

Some of the risks identified by the Federal regulators include legal uncertainties around custody, fraud and scams, contagion within the crypto space, misleading statements by crypto firms, etc.

While some of the big Wall Street US banks have already stayed away from crypto, some small banks still have exposure. The FTX filings show Silvergate Capital Corp. and Signature Bank, both federally regulated, having exposure to the troubled crypto exchange. However, both these banks have said that their deposits with FTX are a very small percentage of the overall deposits.

On Tuesday, Signature Bank added that it would support regulators' focus on crypto. Besides, they also claim to have initiated steps to reduce deposit concentrations relating to crypto. “We do not lend in this space, nor do we trade, invest or custody crypto assets,” the firm said.