GAO urges FDIC to coordinate with agencies on crypto

The U.S. Government Accountability Office made public a June 8 letter to FDIC Chairman Travis Hill urging the agency to coordinate with other federal regulators to address risks from blockchain technology and to strengthen supervision of banks with crypto exposure.

The GAO reported it first raised priority recommendations with the FDIC in May 2023 and later added blockchain technology to its High Risk List after finding regulators had struggled to oversee blockchain-based financial products. The office noted that blockchain-related financial products and services have grown substantially since its earlier review.

In the letter, the GAO recommended creating an ongoing coordination mechanism for federal regulators so they can jointly identify risks from blockchain applications and develop and implement regulatory responses in a timely way. “Establishing such a mechanism, as we recommended, would help FDIC and other regulators collectively identify risks and develop and implement a regulatory response in a timely manner,” the GAO wrote.

The GAO also urged the FDIC to rotate case managers assigned to banks to strengthen supervision. In its 2024 review, the GAO found the FDIC did not require supervisors to move between banks, noting that a lack of rotation could compromise independence and affect supervision outcomes. The office added that a rotation requirement could mitigate threats to independence.

The letter comes as regulatory responsibilities for parts of the crypto market have shifted. Under the GENIUS Act passed last year, the FDIC is the primary regulator for stablecoin issuers that are subsidiaries of banks it supervises. Senate lawmakers are considering legislation to clarify how federal agencies would oversee the broader crypto market.

The GAO referenced failures of several banks in March 2023 that had significant exposure to the crypto industry. Silicon Valley Bank, Silvergate Bank and Signature Bank collapsed within a week after the bankruptcy of the crypto firm FTX, events the office noted raised questions about whether bank supervisors took sufficient action to ensure institutions promptly addressed supervisory concerns.

The GAO asked the FDIC to consider its priority recommendations and to work with other federal agencies to form a coordinated approach to supervising blockchain-related products and services. The office wrote that without a formal coordination mechanism, regulatory gaps could persist while blockchain-linked financial activity continues to expand.