Banks and other financial institutions must engage in a safe and sound manner in any activity they do, and that includes dealing in cryptocurrency, Federal Reserve Governor Christopher Waller said today at a California conference on digital assets. Waller said that cryptocurrency is risky, so crypto holders shouldn’t expect taxpayers to bail them out if those investments go bad. Still, he expressed concern about banks “engaging in activities that present a heightened risk of fraud and scams, legal uncertainties, and the prevalence of inaccurate and misleading financial disclosures.”
“As with any customer in any industry, a bank engaging with crypto customers would have to be very clear about the customers’ business models, risk-management systems,and corporate governance structures to ensure that the bank is not left holding the bag if there is a crypto meltdown,” Waller said. “And banks considering engaging in crypto-asset-related activities face a critical task to meet the ‘know your customer’ and ‘anti-money laundering’ requirements, which they in no way are allowed to ignore.”
Waller noted that so far, spillovers to other parts of the financial system from the stress in the crypto industry have been minimal. “The lack of spillovers to date may be attributable in part to the relatively limited number of interconnections between the crypto ecosystem and the banking system,” he said. “While it is critical that we ensure that the financial stability risks associated with crypto-assets are mitigated, it is important that we keep the various parts of the crypto ecosystem distinct in our minds as the debate about if and how to regulate crypto rolls on.”
