Fed Vice Chair warns banks about crypto liquidity, urges stablecoin regulation


Federal Reserve Vice Chairman Michael Barr said banks accepting cryptocurrency deposits should be aware of increased liquidity risks following the October 12 financial crisis. speech It was published on October 17th.

Barr said liquidity risks increase when traditional banks do business with crypto companies. Such banks may be exposed to liability for money laundering and fraud.

According to him, “recent cracks in these markets show that some crypto assets are fraught with risks such as exposure to fraud, theft, manipulation and even money laundering activity.”

He added that the recent market downturn has shown how interconnected cryptoassets are, and while banks were not directly affected, he added that “cryptofirms misrepresent deposit insurance.” In that case, banks would bear the risk of a crackdown, he added.

He said the Fed is working with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to highlight these issues to banks.

Bar said:

“This initiative is not intended to discourage banks from providing access to banking products and services to companies associated with crypto assets. Our focus is on keeping you in control.”

Barr’s warning comes at a time when traditional financial institutions are showing more interest in offering cryptocurrency-related services. BNY Mellon, a major US bank, recently approved the addition of digital asset management to its services.

Stablecoin regulation

The Fed Vice Chairman also discussed stablecoins, which he argued pose certain risks to broader financial stability. According to Barr, the Fed is particularly interested in dollar-backed stablecoins.

He said that because central banks are the primary source of trust in money, stablecoin issuers owe that trust and the Fed wants a federal framework that protects space.

“Over time, stablecoins could pose risks to financial stability, and it is important to have regulatory frameworks in place before they do.”

He called on the U.S. Congress to take action and provide a strong and robust federal framework that would allow proper regulation of stablecoins.

The Vice-Chair, who took office in July, also discussed several other issues, including the risks of tokenizing bank debt, payment innovations including CBDC, and customer autonomy.

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