When it comes to cryptoassets, banking regulators are continuing to consider “whether and how” certain cryptoasset activity can be conducted in a manner consistent with safe and sound banking, Federal Reserve Vice Chairman for Supervision Michael Barr said yesterday. Barr’s remarks on the crypto sector came a day after crypto-focused Silvergate Bank announced it was shutting down operations, although he didn’t mention the firm, instead pointing to the collapse of FTX in November last year.
“We have just gone through an experience that did not cause enormous disruption to our broader economy but was quite disruptive to the crypto sector in a way that revealed some of the problems people have been highlighting in the sector for a long time,” Barr said in a Q&A session following a speech at the Peterson Institute for International Economics. He added that the Federal Reserve and other agencies are using their existing authorities with respect to the safety, soundness and compliance of the banking system. “But obviously there is a set of activities going on that is mostly not in the banking sector. It is mostly outside the banking sector, and other market regulators and Congress need to think about the appropriate role for regulation of those entities.”
Barr viewed stablecoins as having special risks, with stablecoin issuers seeking some of the same characteristics of federally insured bank deposits. “Stablecoin issuers represent that their liabilities can be redeemed on demand at par, a dollar for a dollar. In fact, however, the assets backing the liability can fluctuate in value,” he said. “Even if the assets backing the claim are high quality, they cannot necessarily be immediately monetized, and operational risks are quite high. As we have seen all too often, depositors sometimes want or need their money immediately, especially in times of stress. … The banks we regulate, in contrast, are well protected from bank runs through a robust array of supervisory requirements.”