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Bitcoin Futures Could Spur Bank Ratings Downgrades

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Rating agencies may downgrade banks that clear bitcoin futures if these financial products continue to see increasing volumes over the coming months.

Financial publication Risk.net reports that each of the three large rating agencies — Standard and Poor’s, Moody’s, and Fitch — have expressed concern over increasing volume in bitcoin futures markets, which are currently available on regulated US exchanges CME and CBOE.

As CCN reported, volume in these markets has grown steadily since their December launch, and combined bitcoin futures trading volume has exceeded $670 million during a single trading session. This increasing volume has helped lend legitimacy to this nascent asset class, but it has rating agencies worried that banks are taking on unnecessary credit risk.

While still too low to be a major concern, rating agencies said that, due to the volatility of the bitcoin price, they may downgrade the creditworthiness of banks who clear bitcoin futures for their clients.

“The impact on ratings is something that we think is perhaps not fully appreciated by the market and something that warrants monitoring going forward,” said. Nathan Flanders, global head of non-bank financial institutions at Fitch Ratings. “If the notional materiality increases, that is going to increase our dialogue with the banks.”

He added: “For banks, even though they are saying they are not directly engaging in the trading of cryptocurrencies as clearing members, they have some indirect exposure to it, whether they  like it or not.”

Rating agencies assign credit ratings — often letter grades — to banks to gauge the risk that they will default on their debts. Banks whose ratings are downgraded may have a more difficult time obtaining access to funding and may also face higher collateral requirements, limiting the amount of credit they can extend to their clients.

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