This week, Acting Comptroller of the Currency Michael Hsu gave remarks to the DC Blockchain Summit titled “Crypto: A Call to Reset and Recalibrate.”
By speaking at the Blockchain Summit, Mr. Hsu may have gone into the so-called belly of the beast to give his self-proclaimed crypto-skeptic message. Notwithstanding his skepticism, Mr. Hsu noted that he does see cryptocurrency’s potential, but will continue along the OCC’s “careful and cautious approach to crypto in order to ensure that the national banking system is safe, sound, and fair.”
Mr. Hsu noted that the recent collapse of the TerraUSD stablecoin and the selloff seen in other crypto assets showed risks in the asset class, and he said it also showed that much of the growth in the crypto space is “indicative of the crypto economy’s dependency on hype.”
Mr. Hsu shared three “high-level observations from the perspective of a bank regulator.”
First, he said that recent events “have revealed deep vulnerabilities in the crypto system.” He noted three in particular:
- Cryptocurrency markets are highly fragmented and cryptocurrency exchanges are prone to hacks
- Contagion risks for cryptocurrency markets are just as real as other financial markets
- Custody and ownership rights are under-developed for the size, scope, and ambitions of the industry
Second, he pointed out that the OCC’s “careful and cautious” approach has shown value in the recent market volatility, as “there has been no contagion from cryptocurrencies to traditional banking and finance.”
Third, he observed that “hype is not harmless,” and elaborated by saying that the hype of crypto and digital assets and the associated vulnerabilities “make the crypto space very dangerous for investors of modest means.”
Mr. Hsu summarized his remarks by noting that the recent market volatility involving stablecoins (and cryptocurrencies more broadly) provides an opportunity “to reset and to recalibrate the problems the industry is trying to solve.”
Courtesy of Cadwalader, Wickersham & Taft LLP
(Oct. 29, 2021) A series of policy statements on crypto assets activities by banks is forthcoming from federal banking regulators, the chairman of the FDIC Board said this week, as the agencies coordinate policies on how banks can engage in the developing technology.
FDIC Board Chairman Jelena McWilliams said her agency has been engaged with the Federal Reserve and the OCC and that a series of policy statements on crypto assets will be issued “in the upcoming months,” she said, focusing mostly on stablecoins.
“In order to realize the potential benefits stablecoins have to offer, while accounting for potential risks, stablecoins should be subject to well-tailored government oversight,” McWilliams said. “That oversight should rest on the foundation that stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets.”
The FDIC Board chairman said her objective is to provide clear guidance to the public on how the agencies’ existing rules and policies apply to crypto assets, what types of activities are permissible for banks to engage in, and what supervisory expectations the agencies have for banks that do engage in such activities.
She used stablecoins as an example of a crypto asset that needs particular attention, especially in the wake of what she called “a dramatic increase” in the use of the assets, primarily to facilitate converting crypto assets into fiat currency.
She said if stablecoin issuers claim to have reserves available on demand to satisfy withdrawal requests, “regulators should have authority to ensure the funds are there, specifically if such issuers are large enough that a stablecoin ‘run’ could result in financial instability.”
“There are other potential risks we must be cognizant of, such as ensuring operational resilience and preventing money laundering,” she said. “Establishing clear regulatory expectations will be paramount to give this market an opportunity to grow and mature in a responsible manner.”
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