Federal Reserve Vice Chair of Supervision Michael Barr stated Wednesday that regulators could provide additional guidance on crypto-based banking activity. A senior financial regulator stated to a Washington audience that while he does not want to discourage banks doing business with crypto-related industries, some digital assets and related services could pose “new risks” to financial stability and the financial system.
Federal Reserve Vice Chair for Supervision Michael Barr said that traditional banks are increasingly using distributed ledger technology and are more exposed to digital assets. Regulators are also paying closer attention.
Barr stated that the Fed is working with its colleagues at the Office of the Comptroller of the Currency (Federal Deposit Insurance Corporation) to ensure that any crypto-asset-related activities banks might be involved in are properly regulated and supervised to protect both customers as well as the financial system. This effort is not meant to discourage banks offering banking products and services for businesses that are associated with crypto assets.
Barr suggests that this could include additional regulatory guidance from the Fed and other banks agencies in the coming months and years.
Barr gave his remarks Wednesday to the Georgetown University Law Center’s D.C. Fintech Week.
Barr, the Fed’s Board of Governors’ financial regulator, stated to a group of lawyers, lobbyists and policymakers that there are potential parallels between the growth of financial innovation, including cryptocurrency, and the events leading up to 2008’s global financial crisis. Barr warned banks that they must be careful when launching stablecoins or engaging in other crypto-related ventures. This is because of the “new risks inherent in digital assets”.
BNY Mellon, the U.S.’s largest bank, announced Tuesday that it will custody cryptocurrency for customers. This is the latest step in the development of crypto-related financial institutions.
Barr echoed a call from the Financial Stability Oversight Council. This super committee of regulators is chaired Treasury Secretary Janet Yellen. Barr called for Congress to adopt comprehensive stablecoin legislation in order to create rules and regulations about that market. However, a finalized bill seems unlikely this calendar year.
The Fed Governor also reiterated comments made by Jerome Powell, Federal Reserve Chair, and Lael Brainard, Fed Vice Chair. He stated that the central bank has yet not made a decision about creating a digital currency. Instead, it plans to launch its own real time payments network, FedNow between May and July next year.