Fed Chair Powell on Crypto: We See Turmoil, Fraud, Lack of Transparency, Run Risk

Federal Reserve Chairman Jerome Powell has outlined several risks related to crypto activities during a hearing before the Senate Committee on Banking, Housing, and Urban Affairs. While stating that the Fed sees turmoil, fraud, a lack of transparency, and run risk in the crypto space, he stressed: “We don’t want regulation to stifle innovation.”

Federal Reserve Chairman Jerome Powell answered some cryptocurrency questions before the Senate Committee on Banking, Housing, and Urban Affairs on Tuesday. During the hearing, Senator Sherrod Brown (D-OH), the committee’s chairman, asked Powell about the risks posed by crypto assets and how the Fed is evaluating the risks of crypto-related activities by its supervised institutions.

“We’ve been quite active in this area,” Powell replied. “We believe innovation is very important over time to the economy. We don’t want to stifle innovation, we don’t want regulation to stifle innovation in a way that just favors incumbents, that kind of thing.” The Fed chair added:

We are watching what’s been happening in the crypto space. What we see is quite a lot of turmoil, we see fraud, we see a lack of transparency, we see run risk — lots and lots of things like that.

“So what we’ve been doing is making sure that the regulated financial institutions that we supervise and regulate are careful, are taking great care in the ways that they engage with the whole crypto space,” the Fed chairman continued.

Powell noted that the Federal Reserve has issued several joint notices with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), warning banks and regulated financial institutions about cryptocurrency risks.

In February, the Fed, FDIC, and OCC jointly warned about crypto’s liquidity risks. In January, the three regulators cautioned: “Banking organizations should ensure appropriate risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, to effectively identify and manage risks.”

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