Federal Reserve (Fed) Vice Chair for Supervision, Michelle Bowman, has called for banks to embrace blockchain technology to remain relevant in the modern financial landscape.
At the Wyoming Blockchain Conference held on August 19, Ms. Bowman emphasized the importance of regulators and banks adopting a more proactive approach to the cryptocurrency industry. She argued that integrating these innovative technologies is essential to maintain a position in a rapidly evolving financial environment.
Bowman stated:
"It is crucial for banks and regulators to be open to new technologies and to abandon overly cautious mindsets. Regulators need to have a thorough understanding of new products and services, while also recognizing the utility and necessity of applying technology in traditional finance."
Bowman emphasized that this transformation is not just a choice but a necessity for the survival of the banking system. She also noted that organizations that fail to adapt may become sidelined, while forward-thinking banks will strengthen their position in the market.
Tokenization: Immediate application
Ms. Bowman pointed out tokenization as one of the most practical applications of blockchain. She explained that tokenized assets can be transferred digitally without the need for intermediaries or the movement of physical securities.
According to her, this approach helps eliminate many manual steps and current oversight coordination, thereby minimizing delays and risks in operations. Furthermore, she noted that tokenization systems have the potential to improve processes, reduce friction in operations, and expand market accessibility.
Therefore, she believes that regulatory harmonization can help transition tokenization from pilot projects to mainstream adoption, benefiting both large banks and smaller community organizations.
Preventing fraud
In addition to the efficiency of tokenization, Ms. Bowman also highlighted the potential of blockchain in combating fraud. In her speech, she acknowledged that financial institutions face numerous risks from identity theft, fraud, and related crimes.
However, she argued that if blockchain can significantly reduce fraud, regulators should facilitate the adoption of this technology rather than hinder it.
Bowman stated: "If fraud can be addressed through new technology, we need to ensure that the regulatory framework does not hinder it. I see this as an exciting opportunity for collaboration between the industry and the Federal Reserve."