Fitch Ratings has cautioned that U.S. banks with significant exposure to cryptocurrencies could face a negative reassessment of their credit ratings. The agency's report, released on Sunday, highlights that while crypto integrations can boost fee income, yields, and efficiency, they also introduce potential risks related to reputation, liquidity, operations, and compliance.
The rating agency acknowledged that regulatory advancements in the U.S. are contributing to a more secure cryptocurrency industry. However, banks still face hurdles in managing the volatile nature of cryptocurrency values, the pseudonymity of digital asset owners, and the protection of digital assets against loss or theft. Addressing these challenges is crucial for banks to fully realize the potential earnings and franchise benefits associated with crypto integrations.
Fitch noted the active involvement of major banks like JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo in the crypto sector. The agency also raised concerns about the systemic risks potentially stemming from the rapid expansion of the stablecoin market, especially if it grows large enough to impact other financial areas and institutions.
According to a report published on Thursday, Fitch Ratings has maintained its "deteriorating" outlook for the sector, citing expectations for "muted" GDP growth in the year ahead and the downside risk posed by further trade disruptions. The report stated that a prolonged trade impasse would likely dampen investment and intensify cyclical pressures in exposed sectors. It also stated that a material increase in tariffs would elevate asset quality risks, particularly for corporates with significant U.S. export exposure. Weaker household finances and slowing immigration also represent headwinds for the banks. The report cited elevated household leverage and affordability constraints, especially for renters and mortgaged homeowners, as key risks to the outlook, noting that savings rates for both of these groups turned negative this year. Ongoing mortgage repricing in 2026 will further pressure consumer debt-service ratios. Any further interest rate cuts, which may ease the pressure on households, would still likely be negative for the Big Six banks. While lower interest rates should reduce banks' funding costs, this positive will be offset by fixed-asset repricing headwinds and weaker domestic loan growth. Banks could also face increased competition from fintechs in 2026, as regulators facilitate open banking and the development of digital asset rules.
Fitch, along with Moody's and S&P Global Ratings, is considered one of the "Big Three" credit rating agencies in the U.S., and its assessments carry substantial weight within the financial sector. A downgrade by Fitch could lead to decreased investor confidence, increased borrowing costs, and growth challenges for banks with significant crypto exposure.
The Basel Committee on Banking Supervision published Basel III monitoring statistics for December 2024, including digital asset exposures. The most significant change is the substantial increase in prudential exposures to crypto for banks based in the Americas. At the end of June 2024, the figure was €610 million. By the end of December 2024, this figure had surged to €10.3 billion ($12 billion), marking a sixteen-fold increase. Europe showed more modest growth of 25% to €3.4 billion.
In light of these growing exposures and potential risks, Fitch's warning underscores the need for U.S. banks to carefully manage their forays into the crypto space and address the associated challenges to maintain their financial health and stability.
