Fitch Warns US Banks: Crypto Profits Could Trigger Credit Downgrades

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Fitch Warns US Banks: Crypto Profits Could Trigger Credit Downgrades

• Fitch says US banks with big crypto exposure face higher reputational and liquidity risks.
• GENIUS and CLARITY Acts clear the way for bank stablecoins and tokenized deposits.
• Banks must harden compliance and operations as digital asset volumes grow under new rules.

Fitch Ratings, the leading global credit rating agency, has published a report on the potential risks that U.S. banks and financial institutions may face following increased digital asset involvement in their systems.

In a new report released Monday, the agency cautioned that US banks integrating cryptocurrency services could face reputational, liquidity, and operational headwinds severe enough to trigger credit rating downgrades.

The GENIUS Act vs. Credit Reality

It is crucial to note that the relatively friendly regulatory atmosphere for cryptocurrency has opened the way for banks to pursue cryptocurrency custody, stablecoin issuance, and blockchain-based services without prior approval. Thus, major financial institutions, including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, have keyed into digital asset initiatives.

These top financial institutions, alongside cryptocurrency firms applying for federal trust bank charters, rely on the provisions of the GENIUS Act and the CLARITY Act, two pieces of legislation that have redefined the U.S. cryptocurrency ecosystem.

While regulatory authorities view this as a modernization of the dollar, Fitch analysts argue that the “pseudonymity” of digital asset owners and the inherent volatility of the underlying tokens introduce compliance blind spots that traditional risk models cannot easily absorb.

The agency noted that unless banks can prove risk isolation, their broader credit profiles remain vulnerable to crypto market contagion.

Treasury’s Bull Case: A $3 Trillion Stablecoin Market

Although the new laws will take effect at future dates, experts and analysts predict they will boost the U.S. digital assets industry by a significant measure. For instance, U.S. Treasury Secretary Scott Bessent projects a $2 trillion target volume for stablecoins from the current $265 billion volume.

Two Sides of the Same Coin

On the positive side, the new legislation, which allows banks to engage in stablecoin issuance, deposit tokenization, and the use of blockchain technology, will promote improved customer service and enable banks to leverage blockchain’s speed and efficiency in payments and smart contracts. However, Fitch Ratings highlighted financial system risks associated with the expanding stablecoin adoption.

The credit rating institution noted that banks would need to address the volatility challenges associated with cryptocurrency values. Additionally, the pseudonymity of digital asset owners and the protection of such assets from loss or theft remain significant pain points and risk channels that banks need to address.