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Federal Reserve Chairman Powell Speaks Out: We Don’t Want To Stifle Crypto


Federal Reserve Chairman Powell Speaks Out: We Don’t Want To Stifle Crypto

Jerome Powell. Source: Video screenshot, Yahoo Finance / YouTube

Federal Reserve Chairman Jerome Powell made it clear that the central bank does not want to impede crypto innovation, but warned that the industry is still rife with fraud and risk.

On Tuesday, Powell testified on Capitol Hill before the Senate Banking Committee. Asked about the cryptocurrency space, he said the US central bank has been “quite active” in this area while acknowledging that blockchain technology has real use cases.

“We have to be open to the idea that – somewhere in there – there is technology that can be incorporated into productive innovation that improves people’s lives,” he told committee members, adding :

“We don’t want regulation to stifle innovation in a way that just favors incumbents and that sort of thing. But, like everyone else, we look at what’s going on in the crypto space and what we see is a lot of turmoil, we see fraud, we see a lack of transparency, we see risk taking .

He also warned once again that banks and other financial institutions need to be careful in how they interact with crypto. “We see a lot of things in crypto activity that suggest regulated financial institutions should be pretty careful when doing things in the crypto space,” he said.

During the hearing, Powell added that he would like Congress to step in with a new legal framework for crypto. He said that while regulators were concerned about banks getting involved in stablecoins, these tokens could have a place in the financial system if properly regulated.

Following a series of high-profile failures in the digital asset space last year, including the collapse of FTX, once the world’s third-largest cryptocurrency exchange, US regulators have taken a stance of increasingly aggressive on the crypto industry.

The SEC, in particular, has cracked down on crypto companies. So far this year, the commission has ordered Kraken to halt its staking services and pay $30 million in fines, while threatening Paxos with a lawsuit over its Binance USD (BUSD) stablecoin issuance .

Could the crypto-contagion spread in TradFi?

The heightened focus on institutions dealing with crypto companies comes as crypto-enabled bank Silvergate has faced issues due to the recent crypto crisis. Last week, the bank announced that it would not be able to file its annual 10-K financial report with the SEC on time and was evaluating its ability to remain in business.

Silvergate was among the hardest hit lenders when FTX fell in November last year. As reported, Silvergate suffered a bank run following the collapse of FTX and had to sell $5.2 billion of debt securities it held on its balance sheet at a significant loss to cover approximately $8.1 billion. dollars of user withdrawals.

As a result, it suffered a loss of $718 million, which would exceed the bank’s total profits since 2013. Additionally, Silvergate had only $3.8 billion in deposits at the end of 2022, compared to 11 .9 billion in 2021.

Silvergate’s troubles could worry the traditional financial sector, as the bank has received at least $3.6 billion in loans from the Federal Home Loan Banks, a system originally designed to support housing finance and lending. community investment.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.