• Federal Reserve Governor Michelle W. Bowman gave a speech in Austria over the weekend about the lack of regulation for crypto assets and how it puts financial institutions at risk.
• She said that there is a supervisory gap in which banks rely on non-binding statements from policymakers, leaving them in a “perilous position”.
• The absence of a clear regulatory framework also disadvantages investors who have already entered the markets.
Federal Reserve Governer Warns Banks of “Perilous Position”
Federal Reserve governor Michelle W. Bowman delivered a speech in Austria over the weekend warning financial institutions of the risks posed by the lack of clear regulations for crypto assets. She noted that there is currently a supervisory gap when it comes to novel banking activities, such as those associated with digital assets, leaving banks in a “perilous position” by relying on general but non-binding statements from policymakers.
Regulatory Uncertainty Disadvantages Investors
Bowman also pointed out that this uncertainty not only puts banks at risk but also disadvantages investors who have already entered digital asset markets. Without clear regulatory frameworks, she said, regulators may determine after the fact that certain activities are impermissible or impose new requirements and expectations on these activities even after significant investments have been made.
Role of Effective Supervision and Regulation
The Fed governor further emphasized the need to develop an effective approach to supervision and regulation if novel activities are to be appropriately monitored and responded to quickly. According to her, failure to do so could have significant consequences for banks trying to meet customer credit needs while navigating higher interest rates.
Call For Clarity On Digital Asset Regulations
Bowman concluded her speech by calling for clarity on regulations involving digital assets so as not to put financial institutions at risk or create unfair advantages/disadvantages for investors entering the market. She believes that changes in supervisory approaches must be taken now if regulators wish to remediate current shortcomings and build capacity for responding quickly and adequately towards emerging risks associated with novel banking activities such as crypto assets.
In summary, Federal Reserve governor Michelle W Bowman’s speech emphasizes that without proper regulation surrounding digital assets, banks may find themselves in dangerous positions with regards to their customers’ credit needs while investors will likely face unfair advantages/disadvantages when engaging in these types of activities. Therefore, it is important for regulators to address this supervisory void by making changes necessary towards effective supervision and regulation if they wish to protect both institutions and individuals involved in crypto asset markets from potential risks posed by lack of clarity around these policies.