Fed’s Bowman calls for embracing blockchain in banking

In a recent speech at the Wyoming Blockchain Symposium, Federal Reserve Vice Chair for Supervision Michelle Bowman called for a more open-minded and proactive

approach to integrating blockchain and other emerging technologies into the traditional banking system. She framed the current moment as a “seismic shift”

and a “crossroads” for the financial industry, stating that regulators and banks must either embrace this change or risk being left behind.

Here are the key points from her remarks:

A Shift from “Overly Cautious” to Proactive: Bowman criticized the traditional regulatory mindset of caution and skepticism, arguing that it focuses too much on the risks of new technology without adequately considering the potential benefits. She urged regulators to understand new products and services rather than simply focusing on the risks they pose.

Benefits of Blockchain and Tokenization: Bowman highlighted the potential of blockchain and “tokenization” to solve known frictions in the banking system. She specifically mentioned that tokenization could facilitate faster, more efficient asset transfers, reduce costs, and lower risks associated with manual processes.

Removing Regulatory Barriers: Bowman announced a significant policy shift, stating that the Fed would no longer allow examiners to penalize banks for servicing legal businesses based on “reputational risk.” This change aims to remove a major hurdle that has prevented banks from engaging with digital asset firms.

Stablecoins and a New Regulatory Framework: She noted that the recently passed “GENIUS Act” has put stablecoins at the forefront and that banking agencies are now working on a new regulatory framework for them. Bowman believes that stablecoins are poised to become a fixture in the financial system.

In a recent speech at the Wyoming Blockchain Symposium, Federal Reserve Vice Chair for Supervision Michelle Bowman called for a more open-minded and proactive approach to integrating blockchain and other emerging technologies into the traditional banking system. She framed the current moment as a “seismic shift” and a “crossroads” for the financial industry, stating that regulators and banks must either embrace this change or risk being left behind.

Here are the key points from her remarks:

A Shift from “Overly Cautious” to Proactive: Bowman criticized the traditional regulatory mindset of caution and skepticism, arguing that it focuses too much on the risks of new technology without adequately considering the potential benefits. She urged regulators to understand new products and services rather than simply focusing on the risks they pose.

Benefits of Blockchain and Tokenization: Bowman highlighted the potential of blockchain and “tokenization” to solve known frictions in the banking system. She specifically mentioned that tokenization could facilitate faster, more efficient asset transfers, reduce costs, and lower risks associated with manual processes.

Removing Regulatory Barriers: Bowman announced a significant policy shift, stating that the Fed would no longer allow examiners to penalize banks for servicing legal businesses based on “reputational risk.” This change aims to remove a major hurdle that has prevented banks from engaging with digital asset firms.

Stablecoins and a New Regulatory Framework: She noted that the recently passed “GENIUS Act” has put stablecoins at the forefront and that banking agencies are now working on a new regulatory framework for them. Bowman believes that stablecoins are poised to become a fixture in the financial system.

Hands-on Experience for Staff: In a notable suggestion, Bowman proposed that Federal Reserve staff be allowed to hold a small amount of cryptocurrency to gain a better, “working understanding” of how digital assets function. She compared this to a ski instructor needing to put on skis to understand the sport.

The Threat of Being Left Behind: Bowman warned that if banks and regulators “stand still,” new technology will simply bypass the traditional banking system, which would ultimately diminish its role in the financial system more broadly. She emphasized that the choice is to either help shape a reliable and durable framework or be bypassed entirely.

Hands-on Experience for Staff: In a notable suggestion, Bowman proposed that Federal Reserve staff be allowed to hold a small amount of cryptocurrency to gain a better, “working understanding” of how digital assets function. She compared this to a ski instructor needing to put on skis to understand the sport.

Hands-on Experience for Staff: In a notable suggestion, Bowman proposed that Federal Reserve staff be allowed to hold a small amount of cryptocurrency to gain a better, “working understanding” of how digital assets function. She compared this to a ski instructor needing to put on skis to understand the sport.

The Threat of Being Left Behind: Bowman warned that if banks and regulators “stand still,” new technology will simply bypass the traditional banking system, which would ultimately diminish its role in the financial system more broadly. She emphasized that the choice is to either help shape a reliable and durable framework or be bypassed entirely.