G20 nations were warned by IMF about incoming trouble for crypto-friendly banks

• The IMF sent a report to G20 nations last month which laid out the implications of crypto adoption in emerging markets.
• The report warned that banks with exposure to crypto may lose deposits and cease their lending activities.

The past week has been devastating for banks affiliated with businesses operating in the crypto space. Silvergate Bank, Silicon Valley Bank, and Signature Bank saw their operations suspended within a week’s span, thanks to liquidity issues.

However, the turmoil in the crypto-banking space was apparently foreseen by the International Monetary Fund (IMF). 

IMF: Banks may lose deposits

The International Monetary Fund sent a report

The report, which was with help from India’s Ministry of Finance and international focus groups, was made public earlier on 13 March.

It highlighted the heightened attention that crypto assets were receiving from policymakers.

According to the report, “unbacked” cryptocurrencies such as Bitcoin, and stablecoins may have widespread implications for microfinance stability if widely adopted.

The IMF argued in the report that the benefits of crypto assets that are currently being marketed, including cheaper and faster cross-border payments, more integrated financial markets, and increased financial inclusion, are yet to be realized. 

The report emphasized that in the meantime, the widespread adoption of crypto assets could threaten the effectiveness of monetary policies.

It also noted that the crypto asset market had grown in complexity and exhibited significant volatility. “A widespread proliferation of crypto assets comes with substantial risks to the effectiveness of the monetary policy, exchange rate management, and capital flow management measures, as well as to fiscal sustainability,” the IMF’s report read. 

According to the IMF, these factors may require changes in central bank reserve holdings, and the global financial safety net, which in turn may lead to potential instability.

The report warned that this may culminate in banks losing their deposits and ceasing their lending operations, which is precisely what transpired at Silicon Valley Bank.