Fitch Ratings Flags Risk For Us Banks With High Crypto Exposure

While crypto offers banks an opportunity to generate new sources of revenue, Fitch warns it could bring risks that could lead to rating revisions.

International credit rating agency Fitch Ratings has warned that it may reassess US banks with “significant” cryptocurrency exposure negatively.

In a report posted on Sunday, Fitch Ratings argued that while crypto integrations can boost fees, yields and efficiency, they also pose “reputational, liquidity, operational and compliance” risks for banks.

“Stablecoin issuance, deposit tokenization and blockchain technology use give banks opportunities to improve customer service. They also let banks leverage blockchain speed and efficiency in areas such as payments and smart contracts,” Fitch said, adding:

Fitch stated that while regulatory advancements in the US are paving the way for a safer cryptocurrency industry, banks still face several challenges when dealing with cryptocurrencies.

“However, banks would need to adequately address challenges around the volatility of cryptocurrency values, the pseudonymity of digital asset owners, and the protection of digital assets from loss or theft to adequately realize the earnings and franchise benefits,” said Fitch.

Fitch Ratings is one of the “Big Three” credit rating agencies in the US alongside Moody’s and S&P Global Ratings.

The ratings from these firms — which can be controversial — carry significant weight in the financial world and impact how businesses are perceived or invested in from an economic viability perspective.

As such, Fitch’s downgrading the ratings of a bank with significant crypto exposure could result in lower investor confidence, higher borrowing costs and challenges to growth.

The report highlighted that several major banks, including JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, are involved in the crypto sector.

Source: CoinTelegraph