Traditional banks are increasing their use of distributed ledger technology, as well as exposure to digital assets, and regulators are paying close attention, said Federal Reserve Vice Chair of Supervision Michael Barr.
The Fed “is working with our colleagues at the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to ensure that crypto-asset-related activities banks may become involved in are well regulated and supervised, to protect both customers and the financial system,” Barr said. “This effort is not intended to discourage banks from providing access to banking products and services to businesses associated with crypto assets.”
That could include further regulatory guidance in coming months and years from the Fed and other banking agencies, according to Barr.
Barr delivered his remarks Wednesday at the Georgetown University Law Center’s D.C. Fintech Week in Washington.
The lead financial regulator on the Fed’s Board of Governors, Barr told an audience of lawyers, lobbyists, and policymakers that he sees potential parallels between the expansion of financial innovation, including cryptocurrencies, and lead up to the 2008 global financial crisis. Barr also warned banks seeking to launch their own stablecoins and engage in other crypto-related projects that it’s an “open question” whether some of those projects comply with current law due to “novel risks inherent” in digital assets.
On Tuesday, BNY Mellon, one the largest banks in the U.S., said that it could custody cryptocurrencies for its customers, the latest step a traditional financial institution has taken into crypto.
Barr echoed a call from the Financial Stability Oversight Council, a super committee of regulators chaired by Treasury Secretary Janet Yellen, for Congress to pass comprehensive stablecoin legislation to create rules and regulations around that market, though a finalized bill looks unlikely this year.
The Fed governor also reiterated the comments of Federal Reserve Chair Jerome Powell and Fed Vice Chair Lael Brainard that the central bank has not yet made a decision on creating a digital dollar, and hopes to launch its own real-time payments network, FedNow, between May and July of next year.
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