The Federal Reserve (Fed) has announced changes in its banking oversight approach that could significantly impact the crypto industry by removing reputational risk and allowing banks to collaborate with crypto firms.
Change in Banking Oversight
According to latest reports, the Fed has removed 'reputational risk' from its supervisory exams, telling banks not to fear serving crypto firms. Speaking at the Wyoming Blockchain Symposium, Vice Chair for Supervision Michelle Bowman stated that the Fed will fully embrace blockchain innovation and update its policies to provide the crypto sector a clear path forward.
Four Principles of New Approach
Bowman outlined four principles guiding the Fed's new regulatory approach:
1. Regulatory certainty - eliminating standards that deter banks from working with crypto. 2. Tailored regulation - evaluating each use case on its merits rather than defaulting to worst-case assumptions. 3. Consumer protection - reaffirming rules against unfair or deceptive practices while applying anti-money laundering laws to crypto-linked products. 4. American competitiveness - ensuring that failing to shape technology could allow it to bypass banks and erode the financial system's relevance.
Impact on Crypto Industry
By removing reputational risk, the Fed indicates that crypto is not inherently negative. Under the new guidance, examiners will only assess clear financial risks like liquidity and legal risks. This aligns with the actions of other regulatory bodies which have also stepped back from reputational yardsticks that led to debanking. Senator Cynthia Lummis described this as a turning point for digital assets.
The Federal Reserve has made a decisive move towards facilitating open collaboration between banks and the crypto industry. Removing reputational risk and integrating crypto oversight into standard banking regulation could have a positive impact on the entire economy.
