How Cryptos Are Impacting the Banking Industry and How to Avoid Being Stuck In the Middle
Cryptos have been making waves in the financial services industry for some time now. From crypto-mining farms to exchanges, there are a variety of financial institutions that operate in this space. Today, many banks have started exploring cryptocurrency adoption as a means of cutting out the middleman and getting their hands on the cash kept by their customers.
While this may seem like a novel idea to most people outside of finance, it isn’t that crazy an idea. After all, who can say where blockchain technology will take us? Even though cryptocurrencies aren’t quite mainstream yet, they’re having an incredible impact on today’s banking industry. Consider these five ways that cryptos are impacting the banking industry and how you can avoid being caught in its crossfire.
Bank Accessibility Is on the Rise
All across the world, people are waking up to the power of cryptocurrencies. When people realize that cryptocurrencies can be used to make payments in places like Venezuela, that’s when things take off. In Indonesia, for example, the local government has decided to allow banks to start accepting digital money. This means that people without bank accounts can now start accessing their savings via a smartphone app.
It’s a very simple process and it takes less than 10 minutes. In other parts of the world, such as Brazil and India, the government has gone one step further and allowed banks to start tapping into the massive cash flow of the crypto economy. These developments indicate that the cryptocurrency landscape is rapidly expanding, and more and more people are becoming aware of the benefits these technologies have to offer.
Cryptos Are Altering how Banks Make Money
As banks look to expand their reach into the crypto economy, one area of frequent scrutiny is the level of regulation. While banks have always monitored cryptocurrency markets, they now have a new target: the people managing those markets. In some cases, the regulators are getting in the way of common sense. For example, the Securities and Exchange Commission (SEC) has been trying to get in the middle of two major crypto exchanges: Bitcoin 360 and Binance.
While it makes sense to regulate exchanges to ensure they’re following the rules, regulating individuals who manage and trade those exchanges is a different story. The SEC has slapped a ban on trading on two separate occasions, holding out the possibility of more to come. Given the SEC’s track record, it’s no surprise that investors are leery of trading with companies that might be found trading with sketchy characters.
Bailouts and Other Cryptocurrency Financing Options
The term “bailout” might not be familiar to the average person, but that doesn’t mean it doesn’t exist. Bailouts are special operations that allow the executive branch of government to intervene in the private sector. The Federal Deposit Insurance Corp. (FDIC) was established in 1933 as a way to help banks get back on their feet after the Great Depression.
Since then, the FDIC has provided financial assistance to over 29,000 banks and other financial institutions, including 6,821 community banks and 2,921 international banks. In addition, the Federal Reserve has provided emergency lending and funding to banks in times of crisis.
Crypto-Banks Lack Regulatory Oversight
In many parts of the world, including the United States, banks are required by law to provide a wide range of services, including regulation and supervision. In other countries, including most of Europe and Asia, banks are entirely separate entities that are regulated by separate agencies. While regulations and supervision play an important role in ensuring that banks are regulated appropriately, they also have room for improvement. In many cases, the oversight of banks is poor at best and lenient at worst.
In the wake of the financial crisis, the Financial Stability Board (FSB) issued a set of recommendations to strengthen oversight of the financial systems of the world’s economies. The purpose of the guidelines, which have been in effect since 2014, was to create a set of best practices for financial stability oversight. However, those in charge of implementing the guidelines have done little to nothing to force banks to comply.
Digital Assets Are Becoming More Accurately Stated
Unfortunately, even with the best-intended regulation and supervision, there are still problems with the accuracy of financial statements. In many cases, banks are required to keep track of a customer’s assets and liabilities at every stage of the financial lifecycle, from financing to accounting to regulatory reporting. However, banks aren’t required to report these movements accurately.
For example, banks may lose track of a customer’s assets when the customer is first denied a loan and then later repossessed. Such inaccuracies can result in a bank being penalized by the Financial Services Commission in Japan, where such reporting is required by law.
As the financial services industry comes to grips with the impact of cryptocurrencies, it’s important to remember that they’re new. Along with the adoption of other new industries, the financial services sector is going through something of a transformation. In time, these changes will have a positive impact on the industry as a whole and on everyday people who can now get their money wisely.