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Opinion

Bank regulators must set capital rules for crypto

While regulators talk tough on stablecoins they must soon set rules for banks to hold cryptos on balance sheet to meet customer demands.

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Leading US bank regulators – the Federal Deposit Insurance Corp, Federal Reserve and the Office of the Comptroller of the Currency – have for some time now been attempting to coordinate policies for how and under what circumstances banks can deal in crypto assets. This effort has been called the crypto sprint.

It is turning into more of a half marathon.

On October 27, Jelena McWilliams, chair of the FDIC, confirmed that a series of policy statements in the months ahead will provide guidance on what types of activities are permissible for banks and on associated supervisory expectations.

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Jelena McWilliams, FDIC

Prohibiting banks from engaging in crypto will simply see it flourish entirely outside the regulated financial system, so supervisors are inclined to allow it.

McWilliams focused on stablecoins, whose use has grown dramatically as more investors shift between cryptocurrencies and fiat currencies. Regulators want to treat them like deposits.

If stablecoins were to become a dominant form of payment, that could lead to substantial sums flowing out of insured banks, with deleterious impacts on their funding, financial stability and credit creation for the real economy.

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