Uncertainty over digital assets traps institutions in a 'supervision vacuum' - Fed Governor

Lack of clarity on digital assets could have significant consequences for banks facing higher interest rates, governor says of the Fed, Michelle Bowman.

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Michelle Bowman, a member of the Board of Governors of the US Federal Reserve, criticized the lack of a clear regulatory framework for new technologies in the United States.

During a speech at the Salzburg Global Seminar on Banking Regulation and Supervision, Bowman drew the attention of global regulators to the current supervision of new banking activities, particularly banking as a service and digital assets. According to Bowman, financial institutions have been left in a "surveillance vacuum" in terms of emerging technologies.

“While there have been some efforts to provide guidance, there remains substantial uncertainty about the legality and prudential expectations for these activities [...]. This leaves banks in the perilous position of s 'rely on broad but non-binding statements by policymakers to be criticized at some point in the future,' said Bowman, whose term at the Fed ends in 2034.

Governor Bowman's speech on banking regulation and supervision: https://t.co/LzwsKieEcx

— Federal Reserve (@federalreserve) June 25, 2023

Additionally, the governor spoke about the risks posed by the current regulatory state, noting that without a clear regulatory framework, regulators can impose new requirements on businesses after significant investments have been made. “If our role is effective supervision and regulation, we must be willing to engage in both new and traditional activities,” she added.

Bowman joins dozens of other voices for a clear regulatory framework for digital assets. Ratings agency Moody's warned on June 20 that investors and businesses could...