Powell Addresses Crypto Concerns Raised in FSOC Annual Report

Federal Reserve Chair Jerome Powell addressed concerns raised in the Financial Stability Oversight Council's annual report, particularly regarding the risks of cryptocurrency.

Federal Reserve Chair Jerome Powell discussed the risks posed by cryptocurrency in response to the Financial Stability Oversight Council’s annual report. Specifically, the report highlighted concerns about the potential impact of speculation in this largely unregulated asset class on individuals’ financial well-being.

Powell clarified that the Federal Reserve is primarily focused on overseeing how banks interact with cryptocurrencies. He noted that banks are permitted to serve customers in this domain, provided they fully grasp and manage the associated risks, ensuring their operations remain safe and sound. Many banks under the Federal Reserve’s supervision are already engaging with cryptocurrency in a secure manner. However, Powell pointed out that banks face stricter thresholds when it comes to crypto activities due to the relative novelty of digital assets.

“Banks are perfectly able to serve crypto customers as long as they understand and can manage the risks. And it’s safe and sound, as a good number of our banks that we regulate and supervise do that. The threshold has been a little higher for banks engaging in crypto activities. And that’s because they’re so new,” he explained.

He went on to elaborate that if a bank chooses to offer crypto services, it must ensure the activity is fully safe, as it operates under the federal safety net, including deposit insurance. The Fed’s cautious approach is intended to prevent risks to the broader financial system while also supporting innovation. Powell emphasized that the Fed is not seeking to hinder cryptocurrency innovation but rather to avoid overly cautious regulations that could unnecessarily disrupt legitimate business activities.