BIS: Top Crypto Firms Create Shadow-Banking Risks

The Bank for International Settlements published a 38-page Financial Stability Institute paper that labels the largest crypto service providers as ‘multifunction cryptoasset intermediaries’ and recommends bank-style prudential safeguards.

The paper describes how so-called yield and earn programs transfer ownership of customer assets to the provider. That structure produces short-term, redeemable liabilities that behave like bank deposits but lack deposit insurance and access to central bank liquidity. Many of the same firms also offer margin lending, derivatives trading and token issuance, which add credit and market risk.

FSI researchers say the combination of short-term liabilities and longer-term or risky asset exposures recreates the maturity and liquidity transformation associated with shadow banking. The paper points to the 2022 collapses of Celsius Network and FTX and to an October 2025 flash crash that erased about $19 billion in leveraged positions as examples of rapid stress.

Transparency is highlighted as a core weakness. The authors reviewed terms and conditions and public disclosures from several large providers between November 2025 and March 2026 and found many do not publish financial statements or clearly disclose how customer assets are deployed. The report says those gaps make it harder for supervisors to assess leverage, liquidity buffers and interconnected exposures.

To address the gaps, the paper recommends a mix of entity-based and activity-based regulation so rules cover both firms and the specific activities that generate bank-like risks. It calls for capital, liquidity, governance and stress-testing requirements comparable to those applied to regulated banks and urges stronger cross-border supervisory cooperation to capture lending and borrowing that now take place outside national frameworks. The authors note limited supervisory resources and weak reporting standards hinder effective oversight.

The report also highlights interconnectedness among large intermediaries. Many of the biggest firms trade with, lend to and custody assets for one another, creating potential for distress at a major intermediary to cascade through the sector in days. The paper notes some institutional investors have shifted custody off exchanges to reduce counterparty exposure.

The FSI paper says large crypto firms are layering services that resemble prime brokerage, custody and lending and argues regulators should no longer treat major platforms as simple trading venues. The report does not include a timeline for when national authorities should adopt binding prudential rules.