© Reuters. FILE PHOTO – A representation of Bitcoin is seen in an illustration taken on June 23, 2017. REUTERS/Benoit Tessier/
By Pete Schroeder
WASHINGTONReuters) – The Federal Reserve has identified the need for “guardrails” to ensure that cryptocurrencies can realize their potential for transformation in the financial sector.
Fed Vice Chair for Supervision Michael Barr highlighted the recent volatility in the crypto markets, noting that it underscores the risk that these assets pose to traditional banks. However, he noted that the impact has been limited by the steps taken by regulators to encourage caution.
Among the measures taken by U.S. financial authorities is the requirement for banks to flag all crypto-related activity to regulators before any transactions are made, as well as the warning that crypto deposits can be subject to dramatic fluctuations.
“These liquidity concerns are particularly acute for banks that have a meaningful portion of their balance sheets funded with such deposits,” Barr said in prepared remarks, which were delivered one day after Silvergate Capital Corp (NYSE:.N.) announced its plans for liquidation following severe losses.
The Fed official insisted that the regulators do not intend to discourage banks from engaging with the crypto sector, but instead are focused on what can be done to ensure it remains secure and stable. He noted that the underlying technology behind cryptocurrencies could bring efficiency and cost savings to financial markets and payment systems.
“Our goal is to create guardrails, while making room for innovation that can benefit consumers and the financial system more broadly,” he stated.
