• Federal Reserve governor Michelle W. Bowman says that the lack of clear regulations for crypto assets is placing financial institutions at risk.
• According to the Fed governor, the uncertainty in policies involving digital assets is putting banks in a “perilous position.”
• Bowman adds that banks may eventually suffer if regulators fail to address the supervisory void and that investors who have already entered the markets may be at a disadvantage due to lack of a clear regulatory framework.
Unclear Digital Asset Regulation Putting Banks at Risk
Federal Reserve Governor Michelle W. Bowman recently delivered a speech in Austria where she highlighted the risks posed by unclear regulations in the digital asset space. According to Governor Bowman, there is currently a supervisory gap when it comes to how regulators oversee novel banking ventures, including activities associated with crypto currencies. This uncertainty puts banks in a “perilous position” as they are relying on general but non-binding statements from policymakers without any guarantee that these will not be criticized later on down the line.
Consequences for Banks
Bowman also noted that failure to follow an appropriate approach could lead to significant consequences for banks navigating higher interest rates while meeting customer needs. Banks could potentially suffer due to lack of clarification on matters such as banking services, digital assets and other novel activities, depending on how regulators decide to act eventually.
Investors at Disadvantage
The Fed governor also expressed her concern over investors entering markets without having clarity on what would be permissible or not since there isn’t any specific guidance available yet from regulators and supervisory expectations have yet to be established for many activities related to cryptos or other novel initiatives. Without such guidance, first movers may invest their resources into something which later turns out not be allowed or end up facing additional requirements after its been done already, causing them potential losses.
Supervisory Approach Needed
Bowman concluded by urging authorities and supervisors alike to take action soon and engage both with traditional as well as novel activities so that all current shortcomings can be remedied and capacity built so as respond effectively towards emerging risks in this field going forward.
In light of her speech, it’s apparent that Governor Bowman believes that greater clarity is needed when it comes digital asset regulation so as protect financial institutions from any potential harm while also ensuring investor safety through proper regulatory frameworks being established beforehand rather than after investments have been made already into unknown areas which might later prove impermissible or require additional conditions afterwards .