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- Polymarket is facing scrutiny from the FDIC and lawmakers over offshore event contracts allowing users to wager on major U.S. bank failures.
- Regulators worry these markets could incentivize insider trading and fuel financial panic, adding another flashpoint to the ongoing debate over prediction market oversight.
Polymarket contracts letting users wager on whether major U.S. banks will fail are drawing scrutiny from the Federal Deposit Insurance Corp. and lawmakers, according to Bloomberg.
The concern is not the size of the market so much as the subject matter. Officials have questioned whether contracts tied to bank failures could fuel panic or create incentives around sensitive financial events, adding a new regulatory flashpoint for prediction markets that sit outside the U.S.-regulated framework.
Recent Polymarket trades on banks failing by year-end had about $76,000 in total volume, while an earlier round of contracts tied to failures by July drew $591,000 in trading, Bloomberg reported. The markets are offered on Polymarket’s offshore platform, which says Americans are barred from trading there.
FDIC officials examined ethics and stability concerns
Bloomberg reported that FDIC officials raised concerns after the contracts were highlighted to senior staff at an internal meeting. Among the questions were whether the wagers served any legitimate commercial or investment purpose and whether agency ethics rules were strong enough to stop insiders from trading on nonpublic information.
Officials ultimately decided the FDIC’s existing ethics rules were sufficient to prohibit that kind of trading, according to the report.
FDIC Chairman Travis Hill said prediction markets could have value as a monitoring tool, but he also expressed concern about people speculating on the timing of bank failures. Former FDIC Chair Sheila Bair took a harder line, saying, “I don’t see any socially beneficial value with those kinds of contracts to offset the financial stability threats and the risks that they pose.”
Sen. Elizabeth Warren also criticized the markets, calling them reckless and saying prediction markets under “Trump’s industry-captured regulators are the wild west, full of insider manipulation.”
Offshore platform distinction is central to the issue
A key detail in the dispute is that Polymarket’s newer U.S. exchange, which is regulated by the Commodity Futures Trading Commission, does not offer wagers on bank failures. Those contracts appear on Polymarket’s older international platform, which is offshore and not regulated by the CFTC.
Bloomberg said the offshore site includes contracts on failures involving banks such as Wells Fargo, JPMorgan Chase, Bank of America and Deutsche Bank, as well as a market tied to a “major US bank bailout.” In many cases, individual wagers were only a few hundred dollars, though some contracts reached the thousands.
Polymarket defended the concept of the markets. Chief legal officer Neal Kumar said, “Bank bailouts and failures are amongst the most consequential events in America,” adding that the company’s markets surface information “in a format everyone can access.”
Rival prediction market Kalshi does not list contracts tied to individual bank failures. A spokesperson described Polymarket’s version as “in poor taste.”
What to watch next
The report leaves several open questions for the industry: whether the FDIC will issue any additional guidance, whether the CFTC will respond to offshore bank-failure markets, and whether Polymarket will keep offering the contracts on its international platform.
The episode also adds to broader scrutiny around prediction-market oversight and insider-trading controls. Bloomberg noted that the Justice Department in April accused U.S. soldier Gannon Ken Van Dyke of using classified information to make more than $400,000 on Polymarket’s international exchange. Polymarket said it referred suspicious trading to authorities.
Source: As reported by Andrew Ackerman and Katanga Johnson.
