Role seen for federal regulators in supervising crypto assets with ‘well-tailored government oversight’

A series of policy statements on crypto assets activities by banks is forthcoming from federal banking regulators, the leader of the federal bank deposit insurance fund indicated Monday, as the agencies coordinate policies on how banks can engage in the developing technology.

In comments at the 20/20 Money Conference, Federal Deposit Insurance Corp. (FDIC) Board Chairman Jelena McWilliams said her agency has been engaged with the Federal Reserve and the Office of the Comptroller of the Currency (OCC) and that a series of policy statements on crypto assets will be issued “in the upcoming months,” focusing mostly on stablecoins.

“In order to realize the potential benefits stablecoins have to offer, while accounting for potential risks, stablecoins should be subject to well-tailored government oversight,” McWilliams said. “That oversight should rest on the foundation that stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets.”

The FDIC Board chairman said her objective is to provide clear guidance to the public on how the agencies’ existing rules and policies apply to crypto assets, what types of activities are permissible for banks to engage in, and what supervisory expectations the agencies have for banks that do engage in such activities.

She used stablecoins as an example of a crypto asset that needs particular attention, especially in the wake of what she called “a dramatic increase” in the use of the assets, primarily to facilitate converting crypto assets into fiat currency.

She asserted that stablecoins have other uses – and risks. “Stablecoins can offer many potential benefits: a faster, cheaper, more efficient mechanism for making payments than legacy systems; ‘programmable’ payments that happen automatically based on the occurrence of a specified event, which could lead to better management of debt repayment,” she said.

The risks, she said, include if one or more stablecoin were to become a dominant form of payment in the United States or globally. “This could lead to substantial sums of money migrating out of insured banks with significant ramifications for credit creation, financial stability, and bank funding,” she said.

She added that if stablecoin issuers claim to have reserves available on demand to satisfy withdrawal requests, “regulators should have authority to ensure the funds are there, specifically if such issuers are large enough that a stablecoin ‘run’ could result in financial instability.”

“There are other potential risks we must be cognizant of, such as ensuring operational resilience and preventing money laundering,” she said. “Establishing clear regulatory expectations will be paramount to give this market an opportunity to grow and mature in a responsible manner.”

Remarks by FDIC Chairman Jelena McWilliams at Money 20/20