Fed's Powell Clarifies Stance on Banks Offering Crypto Services

The Federal Reserve (Fed) has clarified its stance on banks offering cryptocurrency services, with Chairman Jerome Powell stating that the central bank regulator has no intention of preventing such activities. In a Feb. 12 House committee on monetary policy, Powell emphasized that banks and the Fed should be mindful of the risks associated with crypto activities, but also acknowledged that these services can be offered within financial institutions.

Powell noted that there are already numerous crypto activities taking place in Fed-regulated banks, as long as both the bank and the Fed understand the nature of these activities. He warned, however, that banks should avoid overreaching in their crypto offerings. The Fed chair's remarks came in response to questions about the potential impact of a crypto collapse on the US banking system and ways to prevent such an event.

Powell also addressed the recent collapses of Silicon Valley Bank (SVB) and Signature Bank, attributing their failures to exposure to long positions in underwater securities and unsecured deposits. He did not mention crypto in his response, but noted that the Fed had reanalyzed investments made by medium-sized banks with similar characteristics to ensure they were not exposed to the same risks, aiming to prevent a wider contagion.

This is not the first time Powell has expressed the Fed's openness to banks offering crypto services. In a speech following the Federal Open Market Committee (FOMC) meeting, he stated that the Fed is not interested in interfering with the relationship between banks and crypto. He acknowledged that the threshold for banks engaging in crypto activities has been higher due to the market's novelty, but emphasized that the Fed remains open to innovation in financial markets. Powell also mentioned that the US will not issue a central bank digital currency (CBDC) as long as he is the Fed's chairman.