A top Federal Reserve official warned Congress that it needed to pass legislation with strong crypto guardrails to prevent future financial-stability risks.
(Bloomberg) — A top Federal Reserve official warned Congress that it needed to pass legislation with strong crypto guardrails to prevent future financial-stability risks.
Entities offering stablecoins — cryptocurrencies pegged to a separate asset — are an urgent risk that must be addressed, because they’re backed by the dollar and “really borrow the trust of the Federal Reserve,” Fed Vice Chair for Supervision Michael Barr said Wednesday before the US House Financial Services Committee.
It’s “important for Congress to step in and say you’re not permitted to offer a stablecoin unless it’s done under a strong prudential framework with Federal Reserve oversight, supervision, regulation and approval,” Barr said. “Private money can create enormous financial-stability risks, unless it’s appropriately regulated.”
Throughout the committee hearing, Barr reiterated that it’s Congress’s role to intervene. He said bills should include a strong role for Fed oversight of stablecoins, which he called a form of private money.
“And as I’ve said earlier, you know, the historical evidence is that private money without appropriate regulation can lead to runs and financial instability,” Barr said. He noted that the meltdown of Sam Bankman-Fried’s FTX has had a muted impact on the banking system.
On Wednesday, Senator Kirsten Gillibrand, a Democrat, said she was working with Senators Cynthia Lummis and Pat Toomey, the top Republican on the Banking Committee, on a bipartisan stablecoin bill. They hope to introduce the legislation in the next few weeks, she said.
Gillibrand said the Office of the Comptroller of the Currency should be the main regulator for stablecoins but that state regulation should also be allowed.
“The OCC can be the floor and create a certification process for any state that also wants to have a regulatory framework,” she said at event in Washington hosted by the Blockchain Association. “There is a role for state regulators, and I don’t want to dismiss that.”
–With assistance from Ana Monteiro and Allyson Versprille.
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