Fed’s Barr warns banks to take “cautious and prudent approach” to crypto
Federal Reserve Deputy Chairman for Supervision Michael Barr warned banks in a speech Thursday at the Peterson Institute in Washington to tread carefully in the crypto space, stressing that any activity in the space that looks like banking should follow the same rules as banks.
“Our overall position is that banks at this stage of development should take a cautious and cautious approach to engaging in crypto-active related activities and the crypto sector,” Barr said.
“An overarching principle of the Federal Reserve’s financial supervision is that activities that are fundamentally the same should be regulated equally, regardless of where or how the activity occurs or the terms used to describe the activity.”
In a mostly hindsight speech, Barr said that an appropriate regulatory framework is needed for cryptocurrencies, but that right now the Fed and other banking agencies are focusing on using existing authorities to protect the banking system from the risks of crypto.
Barr urged Congress to regulate crypto and specifically establish a framework for stablecoins, noting that stablecoins pose the potential for systemic risk if not properly regulated.
“We don’t have strong federal oversight and oversight of stablecoins,” he said in a Q&A after the speech. “They have this ability because of network effects to scale quickly, and they’re a form of private money that lends confidence to the central bank. And I think it’s absolutely critical that we get regulatory oversight of that.”
Barr said banks should be aware of all the risks they face and take those risks into account and put in place appropriate risk controls.
“We expect supervised entities to ensure that they conduct their activities in a safe and sound manner and in compliance with all relevant laws, including anti-money laundering laws,” he said.
Barr’s speech comes just as Silvergate Capital (SI), one of the crypto market’s top banks, became the first crypto bank to fail after feeling ripples from FTX’s collapse that caused withdrawals of billions in deposits.
Barr drew parallels to the financial crisis, warning that experience shows that new types of financial products and innovation that had become intertwined with the banking system ultimately resulted in “devastating consequences.”
“Experience has shown that cryptoassets can face the same fundamental liquidity and credit risks as traditional assets, and can be highly correlated with other traditional risks, rather than hedging against such risks,” he said.
Barr’s comments come after the Fed, along with the FDIC, and the Office of the Comptroller of the Currency last month urged banks that use funding from crypto firms to monitor liquidity and maintain strong risk management practices to prevent runs.
The agencies warned that deposits banks host from crypto firms could be affected by periods of stress in markets, volatility and external factors over which crypto firms have no control.
The agencies encouraged banks to use existing risk management tools to protect against runs, but stopped short of creating and requiring new risk management rules.
Barr emphasized Thursday that the Fed has told banks that keeping crypto on their balance sheets would not be a safe practice.
“We must learn from the past to ensure that we do not allow new forms of unregulated private money subject to classical forms of risk, and with associated spillover and systemic implications for households, businesses and the wider economy,” he said. .
Click here for the latest crypto news, updates, values, prices and more related to Bitcoin, Ethereum, Dogecoin, DeFi and NFTs
Read the latest finance and business news from Yahoo Finance
