Federal Reserve Governor and Vice Chair for Supervision Michelle Bowman stated on Tuesday that central bank employees should be allowed to hold a small amount of crypto products, noting that practical experience would help enhance their ability to regulate these financial markets.
She indicated that relaxing investment restrictions for employees might also help recruit and retain seasoned bank examiners, and that holding 'at a minimum' crypto and other digital assets would help employees build practical knowledge of these products.
"Nothing can replace the hands-on experience of experimenting and understanding the process of asset ownership transfer," she stated in her prepared remarks at a cryptocurrency conference in Wyoming. "I would never trust someone who has never worn skis to teach me how to ski—no matter how many related books he has read or even written."
Bowman did not specify the amount or type of assets she envisioned holding, but her remarks mark the latest sign of a friendlier attitude towards the crypto space from the Trump administration's regulators. Since Trump took office, the Federal Reserve and other banking regulators have taken several measures to open doors to banks engaging in crypto business, reversing a policy that required banks to clear additional hurdles before engaging in related activities for years.
Throughout her speech, Bowman emphasized that banking regulators need to adopt a less skeptical attitude towards new technologies in the financial sector, including crypto products. She criticized banking regulators for having an 'overly cautious mindset', believing that imposing improper restrictions on businesses could actually hinder the development of the banking industry.
"We must choose whether to embrace change and help build a reliable and lasting framework, or to stagnate and let new technologies completely bypass the traditional banking system. From the perspective of regulators, the answer is obvious," she said.
Bowman acknowledged that any rapid transformation comes with risks, but insisted that regulators need to recognize both the potential benefits and possible issues of these changes.
"When we recognize and consider the broad benefits that new technologies may bring, the risks may be offset, or at least deemed manageable," she emphasized.
Bowman stated that banks and regulators must embrace the advantages of new technologies such as artificial intelligence and crypto, or they risk having their roles in the economy diminished.
"Change is coming," she stated. Ideally, regulators should allow new applications to proliferate 'in a way that benefits the banking system.' She warned, 'If we do not adopt this attitude, the importance of the banking system to consumers, businesses, and the overall economy will decline.'
Bowman called on the industry to help regulators better understand blockchain and digital assets, as well as the potential of new technologies in addressing issues like fraud. She also indicated that she would seek to reduce regulatory scrutiny related to reputational risk, hinting at the possibility of new regulations.
Previously, under pressure from banking groups and Republican lawmakers, the Federal Reserve and other banking regulators had committed to no longer incorporating reputational risk into bank examinations.
