MNI BRIEF: FSB Warns Of Crypto Risk, Calls For Policy Response

Crypto-asset markets are fast evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system, the Financial Stability Board said in a report issued Wednesday.

The FSB, an international body charged by the G20 with monitoring and making recommendations regarding the stability of the global financial system, said financial stability risks could escalate rapidly and called for timely and pre-emptive evaluation of possible policy responses. Officials at the IMF, the Bank of England, and the Federal Reserve have commented in recent months on stability risks amidst the surge in crypto-market capitalization.

The FSB report highlights a number of vulnerabilities associated with crypto-asset markets, including increased leverage, concentration risk of trading platforms, and increased linkages between crypto-asset markets and the regulated financial system. The FSB also notes liquidity mismatch and credit and operational risks that make stablecoins susceptible to sudden and disruptive runs on their reserves, with the potential to spill over to short term funding markets.