Federal Reserve Chair Jerome Powell addressed concerns raised in the Financial Stability Oversight Council’s annual report, particularly regarding the risks of cryptocurrency. Powell was asked whether speculation in this unregulated asset class could harm individuals’ financial well-being, especially in contrast to the broader concerns about the financial system.
Powell said that the Federal Reserve’s primary role is to oversee how banks interact with cryptocurrencies. He noted that banks can serve cryptocurrency customers as long as they understand and manage the associated risks, ensuring their operations remain safe and sound. Many banks under the Federal Reserve’s supervision are already engaging with crypto in a secure manner. However, Powell pointed out that banks face higher thresholds when it comes to crypto activities due to the relatively new nature of digital assets.
“Banks are perfectly able to serve crypto customers as long as they understand and can manage the risks. And it’s safe and sound, as a good number of our banks that we regulate and supervise do that. The threshold has been a little higher for banks engaging in crypto activities. And that’s because they’re so new,” he explained.
He explained that if a bank decides to offer crypto services, it must ensure the activity is fully safe, as it operates under the federal safety net, including deposit insurance. The Fed’s cautious approach aims to prevent risks to the broader financial system while supporting innovation. Powell reiterated that the Fed is not opposed to cryptocurrency innovation, but it seeks to prevent overly cautious regulations from unduly disrupting legitimate business activities.
