Worldwide credit standing company Fitch Rankings has warned that it may negatively price U.S. banks with “vital” cryptocurrency publicity.
In a report revealed on Sunday, Fitch Rankings argued that whereas cryptocurrency integration has the potential to extend charges, yields and effectivity, it additionally poses “reputational, liquidity, operational and compliance” dangers for banks.
“Issuing stablecoins, tokenizing deposits, and leveraging blockchain know-how will give banks the chance to enhance customer support. They may also have the ability to leverage the pace and effectivity of blockchain in areas similar to funds and sensible contracts,” Fitch mentioned, including:
“Nevertheless, it may result in a unfavourable reassessment of the enterprise fashions and threat profiles of U.S. banks with concentrated digital asset publicity.”
Fitch mentioned that though regulatory advances in the US are paving the best way for a safer crypto business, banks nonetheless face a number of challenges when coping with cryptocurrencies.
“Nevertheless, to correctly understand the income and franchise advantages, banks might want to adequately deal with challenges such because the volatility of cryptocurrency values, the anonymity of digital asset house owners, and the safety of digital belongings from loss or theft,” Fitch mentioned.
Bitcoin and Ether volatility vs. S&P 500. supply: Fitch ranking
Fitch Rankings is likely one of the “massive three” credit standing businesses in the US, together with Moody’s and S&P International Rankings.
Rankings from these firms could be controversial, however they carry vital weight within the monetary world and affect how firms are perceived and invested in by way of their financial viability.
Subsequently, Fitch’s downgrade of banks with vital publicity to cryptocurrencies may result in decrease investor confidence, greater borrowing prices, and challenges to progress.
The report highlighted that a number of massive banks are concerned within the crypto sector, together with JPMorgan Chase, Financial institution of America, Citigroup, and Wells Fargo.
Fitch highlights systemic dangers of stablecoins
Fitch argued that the explosive progress of the stablecoin market, particularly if the market turns into massive sufficient to influence different sectors and establishments, may pose different dangers.
“Monetary system threat may additionally enhance if stablecoin adoption grows, particularly if it reaches adequate ranges to influence the U.S. Treasury market.”
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Moody’s additionally highlighted the potential systemic dangers of stablecoins in a report on the finish of September, arguing that widespread adoption of stablecoins within the US may finally threaten the legitimacy of the US greenback.
“Excessive penetration of stablecoins, significantly these linked to the US greenback, may weaken financial transmission, particularly if pricing and settlement are more and more completed in non-domestic currencies,” Moody’s mentioned.
“This creates cryptographic pressures just like casual dollarization, however with elevated opacity and lowered regulatory visibility,” it added.
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