The Federal Reserve (Fed) chairman, Jerome Powell, recently made it clear that the central bank regulator does not intend to hinder banks from offering crypto services to legal customers, as long as they are aware of the associated risks. This statement was made during a House committee meeting on monetary policy on Feb. 12.
Powell emphasized that while crypto activities are already taking place within Fed-regulated banks, it is imperative that both the banks and the Fed have a thorough understanding of these activities. He highlighted the importance of a framework that ensures transparency and accountability in these dealings. Powell also cautioned banks against overextending themselves in their crypto offerings.
The discussion around the potential impact of a crypto collapse on the US banking system prompted Powell to address the recent collapses of Silicon Valley Bank (SVB) and Signature Bank. These collapses were attributed to various factors, including a lack of diversification and exposure to risky investments. Powell clarified that the collapse of these banks was not directly linked to their involvement in crypto activities.
In response to concerns about contagion risk in the banking sector, Powell mentioned that the Fed has been reevaluating investments made by medium-sized banks to prevent similar collapses in the future. This proactive approach aims to identify and mitigate potential risks to ensure the stability of the banking system.
It is worth noting that Powell has shown openness to innovation in financial markets, including the provision of crypto services by banks. He reiterated this stance during a recent speech following the Federal Open Market Committee (FOMC) meeting. Powell emphasized that the Fed’s role is to monitor and analyze banks’ activities in the crypto space, rather than impeding their involvement.
Despite the cautious approach towards crypto activities, Powell reaffirmed the Fed’s willingness to embrace innovation in financial markets. However, he clarified that the US does not currently have plans to introduce a central bank digital currency (CBDC) under his leadership.
Overall, Powell’s statements underscore the Fed’s commitment to balancing innovation and risk management in the evolving landscape of crypto services within the banking sector. This approach aims to foster responsible growth while safeguarding the stability of the financial system.