Fed Governor Michelle Bowman says that banks adjusting to rising interest rates may suffer significantly as a result of the lack of clarity surrounding digital assets.

Source: www.weforum.org

The lack of a defined regulatory framework for emerging technologies in the US has been questioned by Michelle Bowman, a member of the Board of Governors of the US Federal Reserve System. Bowman urged attention from international regulators to the present oversight of innovative financial services, in particular banking as a service and digital assets, during an address at the Salzburg Global Conference on bank regulation and supervision. Financial institutions, in Bowman's words, had been left in a supervisory void in terms of new technology.

While some efforts have been made to offer advice, there is still a great deal of ambiguity regarding the legality of and supervisory expectations for these operations. This puts banks in the risky position of relying on policymakers' vague, non-binding comments, only to face criticism later, according to Bowman, whose tenure at the Fed expires in 2034. The governor also discussed the dangers associated with the existing regulatory environment, pointing out that in the absence of a defined regulatory framework, authorities could put additional obligations on enterprises after they have made substantial expenditures. If our job requires effective supervision and regulation, she noted, we must be prepared to participate in both creative and traditional activities.

In support of a precise legal framework for digital assets, Bowman joins hundreds of other voices. Ratings agency Moody's said on June 20 that without backing from US politicians for legislation focusing on digital assets, investors and businesses would go to other crypto-friendly nations. A draft discussion providing some crypto assets a route to being classified as digital commodities has just been made public by members of the House Financial Services Committee and House Agriculture Committee. The draft law would let such companies provide digital commodities and payment stablecoins and would forbid the U.S. Securities and Exchange Commission (SEC) from refusing to register digital asset trading platforms as regulated alternative trading systems.

The failure to provide financial institutions with a clear strategy on cutting-edge technologies could have major impacts on banks negotiating higher interest rates, Bowman said.

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