The Fed Has a New Vice Chair of Supervision — Here are His Policies on Crypto
In July, the Senate confirmed Michael Barr to become the government’s most influential banking regulator. Confirmed as vice chairman for supervision, his role is responsible for developing a broad plan for the regulation of banks and other financial firms. This includes developing policy recommendations to the Fed board, and overseeing regulatory staff responsible for the largest U.S. financial firms.
In his first policy speech since his confirmation, Barr pushed for action on stablecoins, climate change, and a focus on fairness and safety in the financial industry.
Barr’s Policies on Crypto
In a speech made at the Brookings Institution, Barr outlined his short-term and long-term goals for the financial industry, stressing the need for a safer system that makes a “never-ended effort to analyze risk” and a fairer system which is “fundamental to financial oversight.” Barr touched on capital-risk frameworks, bank resiliency through the Federal Deposit Insurance Corporation (FDIC), and bank merger policy.
Stablecoins
Stablecoins were of particular importance in his talk, stating that a “priority for me as Vice Chair is the regulation and oversight of new forms of private money created through stablecoins.”
He continues that, as history has continuously shows, unregulated private money poses financial stability risks through “destabilizing runs” and “widespread economic harm.” He explicitly states that “Congress should work expeditiously to pass much-needed legislation to bring stablecoins, particularly those designed to serve as a means of payment, insider the prudential regulatory perimeter.”
Digital Assets
Barr prefaces his statements on digital assets by endorsing progressive financial development:
“We should welcome financial innovation as a positive force that can increase access and lower costs for individuals and businesses. That said, innovation can also introduce new risks for consumers.”
He continues that crypto-asset activity requires oversight, as the learning curve to investing in cryptocurrency has resulted in significant losses for individuals. Crypto-activity within banks, specifically, should be well regulated “regardless of the technology used for the activity.” Touching on recent news on crypto-illicit activity, Barr stated:
“Banks engaged in crypto-related activities need to have appropriate measures in place to manage novel risks associated with those activities and to ensure compliance with all relevant laws, including those related to money laundering.”
With the Treasury’s recent ban of Tornado Cash, due to an alleged sum of $7B being laundered through their smart contract, it is not surprised that anti-money laundering and counterterrorism financing is a focus for Barr. The Treasury’s recent crackdown has been joined by enforcement by the U.S. Justice Department, which has made multiple arrests in the past few months for insider trading of digital assets.
Barr emphasizes the need for access to fast, efficient digital payments. This underscores his statements on regulating crypto assets, although he does not draw the connection directly. He adds:
“Low-income households can ill afford to wait days for their income checks to clear, nor can small businesses. A three-day payment delay is an annoyance to someone with savings and ample credit, but it is a costly burden, and sometimes a serious problem for others. And overdraft and insufficient funds fees hit LMI households hard.”
He’s right to touch on fast digital payments. Cryptocurrency has long been hailed as the most accessible and democratic form money has ever taken. It empowers the low income, the oppressed, and the small businesses which lack access and infrastructure required in the traditional banking system. Blockchain-based payment systems, which circumvent the inefficiencies of the traditional finance system, could bring in the more than 1.7 billion people who are unbanked or underbanked — including 25% of U.S. households — into the formal economy.
More than 70% of the world’s central banks are exploring the possibilities for central bank digital currencies (CBDCs). CBDCs are essentially digital versions of each bank’s respective national fiat. A national digital currency could reduce reliance on commercial banks as the principal third-party for money management, empowering consumers who are beyond the reach of physical banks, lack good credit, and lack necessary funds.
However, when it comes to a digital dollar, Barr doesn’t see the rush. He proposes that CBDCs take a backseat as regulators take the sufficient time necessary to understand their implications. He does not view China’s adoption of a digital yuan as a threat. “I don’t think the world will rush to the RMB just because you can use it on your cell phone,” Barr said.
Barr believes “the Federal Reserve has a responsibility to facilitate payments that work well for everyone.” As cryptocurrency regulation continues to roll out, we will see if digital assets can effectively enter the fold.
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