Fed’s Barr Says Crypto Needs “Guard Rails” to Realize Advantage

By Peter Schroeder

WASHINGTON (Reuters) – The Federal Reserve’s top regulator said cryptocurrency technology could still have “potential transformative” impacts on the financial system, but needed “guard rails” to realize them.

Michael Barr, Fed vice chairman for oversight, said the recent turmoil in crypto markets made it clear that the sector could still pose a risk to traditional banks, but that the impact is limited as regulators urge caution.

U.S. banking regulators, including the Fed, have taken several steps over the past few months to ensure banks approach the crypto sector with caution, including requiring banks to report all crypto activity to regulators before proceeding and the warning to companies that crypto deposits can be particularly volatile.

“These liquidity concerns are particularly acute for banks that fund a significant portion of their balance sheets with such deposits,” Barr said in prepared remarks, which came a day after crypto-focused bank Silvergate Capital Corp (SI.N) announced it was liquidating after dramatic losses .

Barr paused to say that banks had no role to play in crypto, saying regulators were busy figuring out what firms could do in this space while staying safe and sound. He noted that the technology behind crypto could make financial markets and payment systems more efficient and affordable.

“Our goal is to create guard rails while creating space for innovation that benefits consumers and the broader financial system,” he said.

(Reporting by Pete Schroeder)