Fintech’s promise is that it can make financial services better, faster, cheaper and more accessible to the typically underserved, but excitement over innovative technology can lead to a pace of adoption that “overwhelms” industry and regulators’ ability to “assess and manage underlying vulnerabilities,” Federal Reserve Deputy Chairman for Supervision Michael Barr told a fintech industry gathering today.
Cryptoassets’ rapid growth — in market capitalization and in reach — and activity outside and inside supervised banks requires oversight that includes safeguards to ensure crypto service providers are subject to similar regulation as other financial service providers, Barr said. “The same type of activity should be regulated in the same way,” he said. “This principle applies even when the activity may look different from the typical activities we regulate, or when it involves an exciting new technology or a new way of offering traditional financial services.”
Because crypto-related activities pose new risks, it is important for banks to ensure that any crypto-asset-related activity they conduct is legally permitted and that banks have appropriate measures in place to manage these risks. In August, the Fed issued supervisory guidance outlining steps that Fed-supervised banks should take before engaging in crypto-asset-related activities. Banks need to understand the increased liquidity risk they face from certain types of deposits from crypto-asset companies, Barr said, adding that there are several types of crypto-asset-related activities where the Fed may need to provide guidance to the banking sector in the coming months and years. .
Stablecoins pegged to the dollar are of particular interest to the Federal Reserve, Barr said. “History has shown that money-like assets are subject to runs that can threaten financial stability,” he said. Barr also noted that banks are exploring different models for issuing dollar-denominated tokens on distributed ledger networks, and he recommended that they only do so in a “controlled and limited manner.” Banks should engage with regulators “early and often” as they experiment, Barr said, to discuss the benefits and risks of new use cases, to ensure they are consistent with banking activities “conducted in a safe, sound and legally permissible manner.” “
