FDIC Says Deposits At Crypto Exchanges Are Not Insured
The US FDIC (Federal Deposit Insurance Corporation) has issued a warning to the public, especially crypto investors. According to the agency, assets that are issued by non-banking entities like crypto companies are not insured.
As a result, users who invest in such institutions do so at their own risk. This is because the corporation cannot recover those funds if something goes wrong.
FDIC Issues Warning About Insured Deposits
On July 29th, the FDIC informed banks about the need to assess the risks about 3rd party relationships with crypto companies. The agency said only deposits made at insured banks are covered.
Hence, customers can get back their funds in case of bankruptcy or insolvency. Meanwhile, the agency said this is not the same for non-bank entities.
These entities include crypto custodians, wallet providers, exchanges, and brokers. It also includes those entities that function like banks.
Additionally, the agency said crypto firms are misleading customers. This is because some of them told investors that cryptocurrency products are FDIC-insured.
Unfortunately, this is far from the truth. An example is the case of a crypto lender, Voyager, which told users that their assets are insured.
The corporation said such statements are misleading and can cause confusion. Also, they can trick consumers into taking great risks.
FDIC Attacks Voyager Over Insurance Claims
Meanwhile, the advice of the agency follows the recent statement of Voyager Digital. Executives at the FDIC, Seth Rosebrock and Jason Gonzalez, attacked the firm for saying its deposits are insured.
The agency said the funds deposited by customers to the firm are not insured. Hence, there is nothing the agency can do.
The FDIC advised insured banks to be careful of their dealings with crypto firms. This is because it might cause its users to deposit huge funds in these crypto firms thinking they are insured.
Such situations could lead to liquidity, capital and earnings risk for banks. Hence, banks should advise consumers about their dealings with crypto firms.
Before now, the FDIC directed United States banks to submit reports about their crypto-related activities. Meanwhile, the corporation started insuring deposits in 1934. It first started with deposits up to about $2,500.
Since then, the agency note that no depositor lost their money in a bank that is FDIC-insured. Meanwhile, over 9000 such institutions crumbled before 1940.
According to the FDIC, about 561 FDIC-insured banks crashed between 2001 to 2022. In 2010 alone, more than 157 insured banks closed.
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