Federal Official Reminds Community Banks of Bitcoin Risks

The Director of the Federal Reserve Bank of San Francisco (FRBSF), Mr. Wallace Young, recently addressed a consultative note to community banks, in which he discussed the potentials risks of partnering with Bitcoin companies and consumers.

While Young mentioned Bitcoin as something that is “here to say”, he also identified the challenges community banks would face while availing its new breed of customers — Bitcoin exchanges, wallet providers, payment processing firms, merchants and others. According to his opinion, the bank officials should be familiar with the ways these Bitcoin businesses are operated, and the extent to which they could reveal themselves to financial risks.

“Banks need not turn away this business as a class, but they should consider the risks of each individual customer,” Young stated. “This will require bank management to broadly understand all the risks involved with conducting banking with these businesses.”

These include the compliance, reputational, credit, and operational risk of availing businesses and customers that — one way or another — are using Bitcoin and similar digital currencies as assets. The note attached enough evidence to prove the presence of these risks while servicing digital currency-based customers.

For instance: Young mentioned a case study of Mt. Gox, a

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