The FDIC Has Had It With Crypto Companies Claiming It Insures Them

After admonishing crypto lender Voyager Digital for "false and misleading" statements on the subject, the FDIC said banks must ensure that crypto firms they partner with are clear about whether customer deposits are insured. From a report: In industry guidance published Friday, the Federal Deposit Insurance Corp. said insured banks should monitor that crypto firms they work with do not misrepresent the availability of deposit insurance and "should take appropriate action to address such misrepresentations." The notice comes a day after the FDIC and Federal Reserve demanded Voyager Digital correct what it called misrepresentations that suggested some of its customers were covered by federal insurance if the firm collapsed.

When Voyager filed for bankruptcy earlier this month, its banking partner, Metropolitan Commercial Bank, issued a statement clarifying that FDIC insurance is available "only to protect against the failure of Metropolitan Commercial Bank," not Voyager. Metropolitan is holding about $350 million in customer funds, which Voyager has told customers will be released after the bank undergoes a fraud prevention process. Metropolitan is far from the only bank holding deposits on behalf of crypto companies, and now the FDIC wants to ensure customers are not further confused about how, or if, their assets are covered.

best fix

[jmccue]

The best fix for this is this rule:

If the crypto company claims FDIC insurance, the Partnered Bank must cover the full "loss" per FDIC rules as specified for regular deposits.

You can be this rule will stop this fraud quickly.

Re:

[Train0987]

You want to punish the bank because a crypto exchange lied? What does the bank have to do with it?

Banks get a lot of special privileges

[rsilvergun]

And with it comes special responsibilities. One of those is making sure that the people they do business with are on the up and up. If they don't like it they can close their business running a bank and open up a burger shop or something.

Re:

[Train0987]

You want banks to do background checks on all of their customers? You expect them to study every customer's web site to make sure they aren't lying about anything?

You want banks to be both a regulator and law enforcement. Blame everybody but yourself for stupid decisions is what it sounds like.

Re:

[Ritz_Just_Ritz]

You mean like the existing "know your customer" rules that are ALREADY in place? How about the suspicious activity reports that banks are ALREADY required to submit for things as innocuous as withdrawing your own funds in cash?

If the banks do business with these charlatans, they bear some responsibility to verify who they are dealing with for sure.

Re:

[Train0987]

KYC is a joke in crypto and you know it.

Remember when crypto was supposed to protect you from the evil banks? WTF happened to that?

Re:Banks get a lot of special privileges

[Train0987]

Crypto Bro, 2012: "Crypto is totally immune from evil Governments and banks!"
Crypto Bro, 2022: "I demand someone in the Government force a bank to give me back the money stolen from me by crypto!!!"

Re:

[NoWayNoShapeNoForm]

Crypto Bro, 2012: "Crypto is totally immune from evil Governments and banks!" Crypto Bro, 2022: "I demand someone in the Government force a bank to give me back the money stolen from me by crypto!!!"

I would +1 that post if I had Mod points.

Re:

[PPH]

You expect them to study every customer's web site to make sure they aren't lying about anything?

First point: I assume you really meant 'partner'. The 'know your customer' rules don't really apply here.

Study their web site? Web technology is such that what your compliance department sees isn't necessarily what the rubes^H^H^H^H^Hcustomers see. It's like a VW diesel emissions system on steroids.

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[Train0987]

Voyager was a customer of the bank. They weren't "partners" any more than "associates" at WalMart are. Unfortunately if I claim that you're my partner that doesn't obligate you to pay my debts.

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[Richard_at_work]

The more restrictions and liability you place on the banks, the fewer banks will cater to these markets.

The UK is finding this out at the moment.

After the 2008 global financial crisis, the UK government fostered a sense of blame against the banks in the UK, despite only one failing and one being placed into the position of failing by the government itself - all the banks were tarred with the same brush (go ask anyone and they will say all the banks got free money - only two received financial aid, the rest

You know that's not by accident right?

[rsilvergun]

Having Banks cater the high risk markets when banks are an integral part of our society and economy isn't a good thing. Regulations exist for a reason but for some reason we all kind of forgot that in the last 40 years. Then every decade or so the entire world economy collapses and we all lose our jobs in a bunch of our property and for a brief period of time we remember why we put those rules in place. Then the economy recovers a little and we forget and we remove all those laws.

During the last adminis

Re:

[Anonymous Coward]

Well, part of being a partner is that you're supposed to do due dilligence on those you partner with.

Re:

[Powercntrl]

The best fix for this is this rule:

Firing squad.

Re:

[stabiesoft]

Not firing squad, just criminal fraud with real jail time for the crypto directors/founders. A little jail time would go a long way in squashing this craziness.

Re:

[Anonymous Coward]

Better fix, any crypto company claiming FDIC insurance gets shut down by the FDIC, with all funds being converted to USD and deposited with the bank the cyrpto firm used. The suckers, er I mean "customers" of the crypto company can then have accounts created at said bank to access their funds which are now backed by the fed instead of some imaginary bits floating around completely unregulated. It's really doing all those crypto suckers a favor anyway.

Re:

[Anonymous Coward]

jury nullification

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[account_deleted]

Comment removed based on user account deletion

Re:FDIC will fold like a paper airplane in a torna

[splutty]

It's absolutely pointless to try to come up with anything factual (you'll just say it's from MSM or Fake News or whatever), or with a rebuttal (since you'll just say "You don't believe that" or "That's not true" without actually explaining why it's not true).

So yes. People resort to snark. Just like people resort to snark with the street corner doomsday preacher, or the flat earther uncle.

Re:

[Seven Spirals]

Yeah, flat-earthers and lizard-governments are the same level of conspiracy theory bullshit as stating the FDIC has about a 100:1 insurance ratio as documented by Uncle Sam. Sure. Keep telling yourself that, genius. Keep watching TV. You'd be dangerous if you ever woke up.

Re:

[Anonymous Coward]

It isn't a conspiracy theory to say that FDIC reserves are 100:1, because the FDIC publicly states that their reserves are (by law at least) 1.35% [fdic.gov]. You hurt your credibly by linking to a life-insurance agent's blog to support your only verifiable fact (by verifiable I mean with about 30%).

But this credibility would have been lost once you claim that "they" are working (conspiring, even!!!) to hide a lurking catastrophe:

All it takes is a big enough hit and their lies MIGHT be exposed. Also, though, the Fed might just print the money to cover any losses and act like "This is fine."

If you think the FDIC should have larger loss reserves, just say so (I have no idea). B

Re:

[UnknowingFool]

No but you claiming that the Fed's "lies MIGHT be exposed" and a few posts later acknowledging that the fractional reserve is publicly known is a bit incoherent.

Re:

[Seven Spirals]

Fractional reserve banking is just called "banking". That's how it's been done and is still done. The morality of it is debatable, but the operational nature of it is not. Funny that folks interpret any mention of it as some kind of signal that someone is about to start spouting Lizard-ruler conspiracies. If someone going off on "government lies" upsets you, then you probably just have a bias for mainstream lies and bullshit. That's not my fault, nor does it change the facts. The government *does* lie. Get

Re: FDIC will fold like a paper airplane in a torn

[ArmoredDragon]

This doesn't really mean shit because the FDIC is always very aggressively monitoring the bank's books and their financial outlook. The FDIC steps in long before the bank can reach insolvency, and if they don't see a satisfying course correction they take over the bank completely, generally until one of two things happens:

1) A competitor buys them out, assuming all debt obligations in the process
2) The bank is fully liquidated (including selling outstanding loans) and customers' money is returned using the

Re:

[Ed Tice]

There are similar comments every time we have any financially-related article. People seem to think that the entire assets of a bank can disappear overnight. Short of world-record fraud (and then it would only be a single bank), such a thing doesn't happen. The bank has money from various sources including consumer deposits. If the amount of money that a bank has ever gets to a point where it doesn't exceed deposits by the required capital reserve, the FDIC will step in and wind down the bank. The bank

Re:

[gweihir]

Yep, the moron you responded to has no clue how things work but a big mouth. All too common these days.

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[fermion]

We know that China, Russia, Korea has agents that highlight vaguely accurate information to create instability in the US economy, to stir inflation and hurt the stock market, for instance. Past performance is no indication of future results, but the west has been very aggressive and successful to limit damage, even when the institutions are at fault. One case is the trader that was only allowed to service family account, it manage to amass massive debt and create an historic one week loss effecting banks w

Re:

[Seven Spirals]

The FDIC is part of the Federal government. Just like the jackasses in China who cleaned up Evergrande were part of the Chinese government. Governments can print money at will to cover losses. I won't argue that. What they can't do is print value and if they overwork the presses they lose the value like every single fiat currency in history has done eventually.

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[fermion]

Around 1700 the bank of England was founded. Around 1910 the gold standard was suspended and ended around 1940. Except for around 10pm years as part of the EU the pound sterling has been one on the most respected fiat currencies for over 300 years.

Re:

[Seven Spirals]

The Spainish, Dutch, and Romans have had longer runs than that with their fiat currencies. In the end, they still failed. Ancient gold coins still spend at or above spot value.

A Bold Statement Indeed

[Koby77]

I misread the title to mean -- Crypto company claims that it insures the FDIC. Customer: "Are you FDIC insured?" Crypto Bank: "lol, WE are the FDIC's insurance in case THEY go bankrupt."

Does the FDIC have authority to file lawsuits?

[ayesnymous]

Does the FDIC have authority to file lawsuits?