- On July 29, 2022, Federal Deposit Insurance Corporation (FDIC) released a Fact sheet.
- In the fact sheet, they elaborated on the FDIC deposit insurance coverage against the failure of any crypto firm.
- FDIC clarifies that deposits at insured banks are covered up to $250,000. But for crypto firms, no such guidelines have been released before.
What FDIC Says About Crypto Insured?
According to the Fact Sheet of FDIC, the FDIC said some crypto firms represent some misconceptions about the scope of deposit insurance coverage as these firms show their customers that their products are eligible for the FDIC deposit insurance coverage.
This misconception made the customer believe that their money or deposits were secure. In contrast, the FDIC concerns the crypto customers like crypto custodians, exchanges, brokers, wallet providers, and neobanks.
Today, we issued an advisory to FDIC-insured financial institutions on FDIC deposit insurance and the risks of dealing with #crypto-asset companies. Read more
— FDIC (@FDICgov) July 29, 2022
The Fact Sheet of FDIC simplifies their deposit insurance coverage into two different points:
1. FDIC Deposit Insurance Coverage
- As per federal law, FDIC only insures deposits held in “insured banks.” And in some cases, in the failure of an insured bank.
- Since the beginning of FDIC in 1934, no depositor has lost a cent of FDIC-insured funds.
- The deposit insurance only applied to products like checking accounts, savings accounts, and certificates of deposits held at deposit banks.
- Insurance coverage is only available for deposits held in insured banks at the failure.
2. Products and Risks that Deposit Insurance does not cover
- FDIC deposit insurance does not apply to financial products like stocks, bonds, money market mutual funds, securities, commodities, or crypto assets.
- This does not apply against the losses due to theft or fraud.
- Also, this does not apply against the default, insolvency, or bankruptcy of any non-bank entity, including crypto.
FDIC followed a Thursday letter by the FDIC enforcement department, with the assistance of general counsels Jason Gonzalez and Seth Rosebrock. It is titled about the crypto lender Voyager Digital. The letter states that Voyager Digital has made “false and misleading” statements to avail insured deposits.
In addition, the letter clarified that FDIC would not insure either Voyager customers or the funds that deposit on the Voyager platform against the company’s failure.
“Customer confusion can lead to legal risks for banks if a crypto company, or a third-party partner of an insured bank with whom they are dealing, makes misrepresentations about the nature and scope of deposit insurance.”
“Moreover, misrepresentations and customer confusion could cause concerned consumers with insured-bank relationships to move funds, which could result in liquidity risk to banks and in turn, could potentially result in earnings and capital risks.”
Source: https://www.thecoinrepublic.com/2022/07/30/fdic-releases-a-fact-sheet-on-fdic-deposit-insured/