Michelle Bowman, the Federal Reserve’s vice chair for supervision, acknowledged that cryptocurrency companies have experienced banking disruptions due to regulatory uncertainty.
At the Wyoming Blockchain Symposium on August 19, Bowman also announced that the Federal Reserve’s attitude towards blockchain innovation will undergo a fundamental shift.
She revealed that the Federal Reserve had removed "reputational risk considerations" from bank supervision at the end of June to eliminate obstacles for financial institutions to provide services to legally operating digital asset companies.
“Your industry already faces numerous obstacles due to unclear standards, conflicting guidance, and inconsistent regulatory interpretations by banking regulators,” the Fed official said.
Bowman stressed that banks should not face penalties for serving customers operating legally, noting that customer selection decisions "are squarely within the purview of bank management" and not for regulators to intervene.
In addition, she mentioned that the Federal Reserve has shifted from an "overly cautious mentality" and began to support the traditional banking system in embracing blockchain technology.
She warned that regulators must choose between "developing a technological framework" and "allowing innovation to bypass banks completely," which could undermine the economic relevance of the banking industry.
Currently, the Federal Reserve is updating its review manual and regulatory materials to ensure the long-term implementation of the "removing reputation risk" policy.
Bowman proposed four core principles to guide the Federal Reserve’s new direction in digital asset regulation.
“Regulatory certainty” is the primary principle, intended to address industry concerns that “the lack of clear regulatory standards makes it hesitant to invest in blockchain development.”
Bowman questions whether companies would still choose to partner with banks if they knew they faced regulatory uncertainty, rather than turning to alternatives outside the banking system.
“Targeted regulation” constitutes the second principle, which requires regulators to evaluate application scenarios based on specific circumstances rather than regulating based on “worst-case scenario” assumptions.
The Federal Reserve must recognize the unique differences between digital assets and traditional financial instruments while avoiding a one-size-fits-all approach that fails to address the actual risk profile.
The third principle, Consumer Protection, ensures that customer-facing products comply with existing consumer protection regulations, including prohibitions on unfair, deceptive or abusive practices.
The regulatory framework for digital assets must incorporate Bank Secrecy Act and anti-money laundering requirements while maintaining the safety and soundness standards of banks.
The final pillar of the framework is “American Competitiveness,” a principle designed to position the United States as a leading global innovation destination. Bowman warned that without a sound regulatory framework, the United States’ long-term leadership in fintech development could be at risk.
Bowman announced that the Fed's "innovation supervision" work will be reintegrated into the Reserve Bank's examination team, resuming the regular supervisory process for banks' innovative activities.
She proposed allowing Federal Reserve staff to hold small amounts of digital assets to gain a deeper understanding of how blockchain works, likening the need to practical learning rather than theoretical study.
Editor's Note: This is a stark shift from the US government's previous stance, particularly that of former SEC Chairman Gary Gensler. Gensler, who taught a university-level blockchain course at MIT, admitted he never held any digital assets or personally executed trades, meaning he never actually interacted with blockchain with his own funds.
The Federal Reserve recognizes that tokenization can help speed up the transfer of asset ownership while reducing transaction costs and settlement risks. Bowman pointed out that banks of all sizes, including community institutions, can benefit from the efficiency gains brought about by asset tokenization technology.
In addition, she emphasized that the passage and signing of the GENIUS Act by the President has positioned stablecoins as an important part of the financial system, which has far-reaching implications for traditional payment channels.
Bowman called for industry engagement to help regulators understand blockchain’s ability to solve more problems beyond its current application scenarios.
She specifically requested industry input on how new technologies can be used to combat fraud, viewing it as a key opportunity for the Federal Reserve to collaborate with the digital asset sector.
Bowman concluded that in building a more modern and efficient financial system, innovation and regulation complement each other rather than conflict with each other.
