Fed's Stance on Innovation and Stability
The top bank supervisor at the Federal Reserve (The Fed) is issuing a decisive warning to both traditional banks and stablecoin issuers that new rules are forthcoming and expected soon. In prepared remarks to the House Financial Services Committee, Michelle Bowman stated that regulators must act now to ensure that innovation and stability are mutually aligned.
This effort aims to foster a healthy competition among fintech firms, Wall Street, and crypto-related businesses.
In her prepared statement for a hearing with the House Financial Services Committee, Bowman acknowledged that her main responsibility as a regulator is to back mindful innovation. She also urged other regulators to continually improve their ability to address risks associated with new developments.
Her remarks come as the US, through the recently passed GENIUS Act, has already laid the foundation for a comprehensive legal framework for “payment stablecoins,” including rules for reserve backing, redemption rights, public disclosures, and regulatory oversight.
Traditional Lenders' Concerns and Stablecoin Regulations
Following this development, Bowman claimed that new technologies play a significant role in the banking sector, as they make the sector more efficient, widen credit accessibility, and promote fairer competition with digital asset firms and fintech companies.
She also mentioned that she will work together with other agencies to develop capital and diversification rules applicable to stablecoin issuers. According to Bowman, these regulations will be created as required by the GENIUS Act. This act requires stablecoin issuers to register and maintain dollar-for-dollar reserves formally.
Meanwhile, under this collaboration, Bowman stated that the role of these agencies is to clarify digital assets guidelines and offer suggestions on proposed new uses.
She made these remarks during an existing dispute between crypto companies and banks. These two sectors disputed over the future of digital asset regulation, including the battle for gaining access to bank charters. Crypto firms argued that these charters are essential for their operations, as access to them could provide several advantages, like increased credibility.
Nonetheless, traditional lenders warn that such a move could result in a competitive environment that is unfair or weaken the charter system. If this happens, lenders anticipate that companies will be allowed to carry out their operations under a bank license without complying with all the responsibilities that have historically been associated with it.
Commitment to Bank Capital Measures
Bowman’s testimony demonstrates her commitment to bringing various bank capital measures to completion. An example of these measures includes the long-awaited Basel III Endgame.
“My strategy is to focus on adjusting the new framework from the ground up instead of trying to change things to fit existing ideas about capital requirements,” she said.
Updates on Basel III Plan
Earlier, a reliable source revealed that the Federal Reserve sent an updated Basel III plan to other US regulators. Sources close to the situation suggested that this plan would significantly ease a capital proposal from the Biden administration targeting the most significant banks on Wall Street.
Following the release of this news, several officials shared their predictions regarding the impacts of the Fed’s plan. Some anticipated that this plan could lead to an increase of approximately 3% to 7% overall for most leading banks.
While the officials forecasted different viewpoints, these sources, who wished to remain anonymous due to the confidential nature of the situation, declared that there was no precise prediction in the outline.
However, reports noted that these estimates were lower than the 19% rise suggested in 2023. Additionally, it was lower than the 9% increase proposed in a compromise version last year.
Bowman weighed in on the matter. She mentioned that the Fed will join forces with other efforts to enhance the surcharge for major banks within the wider capital framework.