Fed Vice Chair Barr urges stablecoin regulation for banks

Category: Americas Crypto Regulatory
Posted by Teuta

After the U.S. Federal Reserve published the latest ‘Monetary Policy Report’ defining the stablecoin industry as a risk for the finance industry and urging stablecoin regulation, Vice Chair Michael Barr has commented that banks accepting crypto have to act responsibly for their own liquidity (or the lack of).

Fed stablecoin regulation to ensure appropriate risk management

Fed Vice Chair Barr explained that traditional financial companies that are dealing with cryptocurrencies, including stablecoins, are usually more exposed to liability from money laundering, theft, manipulation and fraud.

He further stated that the recent bear market has to do with “misrepresentations regarding deposit insurance by crypto-asset companies.”

Barr confirmed the Fed is working with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) to warn banks of these issues.

“This effort is not intended to discourage banks from providing access to banking products and services to businesses associated with crypto-assets. Our work in this area is focused on ensuring risks are appropriately managed,” he added.

This warning came as traditional financial institutions show more interest in providing crypto-related services. USDT, USDC, and BUSD have accounted for most of the stablecoin market cap, but the Fed said there is a lack of transparency regarding the underlying assets that back them.

“Stablecoins that are not backed by safe and sufficiently liquid assets and are not subject to appropriate regulatory standards create risks to investors and potentially to the financial system, including susceptibility to potentially destabilizing runs,” the report said.

US Secretary of the Treasury Janet Yellen reiterated that stablecoins are not adequately supervised in the States, urging lawmakers to “act quickly” to establish a regulatory framework for the asset.

Fed stablecoin bill not coming soon

However, it seems speed isn’t something Fed can brag about. According to US Rep. Jim Himes, a stablecoin bill will not pass before Congress’ term expires in January.

Speaking at the Investing in Digital Enterprises and Assets Summit, Himes said a stablecoin bill probably won’t pass in early 2023, adding that “four years ago, if you said Bitcoin, crypto and DeFi in the halls of Congress, nobody would have known what you were talking about. The progress that has been made in Congress is pretty remarkable.”

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