The Federal Reserve Vice Chair for Supervision, Michelle Bowman, recently addressed the issue of de-banking in the cryptocurrency industry due to regulatory uncertainty. Speaking at the Wyoming Blockchain Symposium on August 19, Bowman made a significant announcement regarding the Fed’s approach to blockchain innovation.
One of the key changes she highlighted was the removal of reputational risk considerations from bank supervision in late June. This move was aimed at removing barriers that were preventing financial institutions from serving digital asset companies engaged in legal activities. Bowman emphasized that banks should not be penalized for serving customers conducting lawful business operations, and that customer selection decisions should be left to bank management without regulatory interference.
In addition to this policy change, Bowman also mentioned a shift in the Fed’s mindset towards embracing blockchain technology within the traditional banking system. She warned that regulators must decide between shaping technological frameworks or risk innovations bypassing banks entirely, potentially diminishing the banking sector’s economic relevance.
To ensure the lasting implementation of the reputational risk removal policy, the Fed is updating examination manuals and supervisory materials. Bowman also established a four-principle regulatory framework guiding the central bank’s approach to digital asset regulation.
The first principle is regulatory certainty, addressing industry concerns about investing in blockchain development without clear supervisory standards. The second principle is tailored regulation, requiring supervisors to evaluate use cases based on specific circumstances rather than applying one-size-fits-all approaches. Consumer protection is the third principle, ensuring that digital asset frameworks comply with existing consumer protection laws. Lastly, American competitiveness is the fourth principle, positioning the US as a global innovation destination.
Bowman also announced changes in technology integration and supervision, with the Fed reintegrating “novel supervision” activities into Reserve Bank examination staff. She proposed allowing Federal Reserve staff to hold minimal digital assets to develop a better understanding of blockchain functionality.
Moreover, Bowman highlighted the potential of tokenization for facilitating faster asset ownership transfers and reducing transaction costs and settlement risks. She also mentioned the passage of the GENIUS Act and the presidential signature, positioning stablecoins as integral components of the financial system.
In conclusion, Bowman emphasized the importance of industry engagement to help regulators understand blockchain’s capacity for solving additional problems beyond current use cases. She stated that innovation and regulation should complement each other in creating more modern and efficient financial systems.
Overall, Bowman’s announcements signify a significant shift in the Fed’s approach to blockchain innovation and digital asset regulation, showing a willingness to adapt to the changing landscape of the financial industry.