Banks and other financial institutions must be safely and soundly involved in whatever they do, and that includes trading cryptocurrency, the Federal Reserve Governor Christopher Waller said today at a California conference on digital assets. Waller said that cryptocurrencies are risky, so cryptocurrency holders shouldn’t expect taxpayers to bail them out if those investments go wrong. Still, he expressed concern about banks “engaging in activities that present a heightened risk of fraud and scams, legal uncertainties, and the prevalence of inaccurate and misleading financial disclosures.”
“As with any client in any industry, a bank engaging with crypto clients would need to be very clear about clients’ business models, risk management systems, and corporate governance structures to ensure that the bank don’t take the stock if there is a crypto crash,” Waller said. “And banks considering engaging in crypto-related activities face a critical task in meeting know-your-customer and anti-money-laundering requirements, which they can by no means ignore.”
Waller noted that spillover effects on other parts of the financial system from stress in the cryptocurrency industry have been minimal thus far. “The lack of spillovers to date can be partly attributed to the relatively limited number of interconnections between the crypto ecosystem and the banking system,” he said. “While it is critical that we ensure that financial stability risks associated with crypto assets are mitigated, it is important that we keep the various parts of the crypto ecosystem distinct in our minds as the debate on whether and how to regulate cryptocurrencies progresses. do it. .”
