Powell Intensifies Cautionary Remarks About Crypto and Its Instability

Jerome Powell, the chairman of the Federal Reserve, is cautioning American banks once more about the dangers of investing in the digital asset market.

On Tuesday, Powell outlined several worries he has about cryptocurrencies and emphasized the need for bankers that the regulator supervises to use “taking great care” when dealing with them. The central bank, he continued, did not intend to stifle innovation.

“We don’t want regulation to stifle innovation in a way that just favors incumbents and that kind of thing,” he said during a hearing before the Senate Banking Committee. “But, like everyone else, we’re watching what’s been happening in the crypto space and what we see is quite a lot of turmoil, we see fraud, we see a lack of transparency, we see run risk.”

Since the collapse of the cryptocurrency exchange FTX last year, American bank regulators have adopted a more assertive stance against digital assets. On January 3, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation released a direct statement saying that risks associated with cryptocurrencies that cannot be regulated shouldn’t be permitted to enter the banking system.

Powell stated on Tuesday that he would be open to Congress establishing new regulations on cryptocurrencies. He continued by saying that although authorities were concerned about banks using stablecoins if they were properly regulated, such tokens might find a place in the financial system.

He was frequently questioned about the regulator’s ongoing review of bank capital requirements throughout the hearing.

In Washington, the amount of money that banks must hold aside has grown in importance. CEOs have argued that capital requirements resulting from stress tests may adversely affect their companies.

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