European Union considers limited impact of the crypto winter on the financial system
The European Systemic Risk Board (ESRB) considers that the impact of the turmoil that affected crypto assets and decentralized finance (DeFi) last year, with the bankruptcy of various platforms, has been limited
In the last year, the tensions in the cryptographic asset market triggered a series of bankruptcies of trading platforms and ‘exchanges’ in the sector, such as FTX, BlockFi or Silvergate Bank, in what is popularly known as ‘crypto winter’.
In a recently published report, the ESRB European Systemic Risk Board, an independent EU body responsible for macroprudential supervision of the banking system, which is chaired by the President of the European Central Bank (ECB), Christine Lagarde, points out that the Crypto assets have few interconnections with the traditional financial sector and the real economy, noting that “none are currently significant.”
However, given the exponential growth and high volatility of crypto assets, he considers that they should be closely monitored for potential systemic risks that may materialize if, for example, interconnections with the traditional financial system increase over time, if these are not quickly identified or if innovations like ‘blockchain’ are widely adopted in traditional finance.
In this way, in order to better understand the evolution of crypto assets and their possible implications for financial stability, the ESRB will improve the EU’s ability to monitor possible contagion channels.
To this end, it considers it essential to promote standardized information presentation and disclosure requirements for traditional financial sector entities such as banks with exposure to crypto assets; investment funds with exposures to crypto assets, and stablecoin issuers or digital wallet service providers in the crypto asset sector.
Likewise, the EU macroprudential supervisor proposes options to address the risks derived from crypto asset conglomerates, the leverage practices in which these instruments are used, new operational challenges, DeFi and crypto asset staking and lending services.
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