- Key Insight: Fed Vice Chair for Supervision Michelle Bowman said she wants banks to have an even playing field with nonbanks when it comes to holding digital assets, though stressed this should be done in a way that promotes safety and soundness.
- Expert quote: "We want to make sure [banks are] engaging in a way that separates those digital assets on their balance sheet from the regular business activities." — Fed Vice Chair for Supervision Michelle Bowman
- What's at stake: With the passage of stablecoin legislation earlier this year, the Federal Reserve, along with other agencies, has been tasked with helping build out the regulatory framework for the asset-backed tokens.
The Federal Reserve's top regulator wants banks to have a level playing field with nonbanks when it comes to participating in activities related to digital assets.
Speaking Tuesday at the Santander International Banking Conference in Madrid, Federal Reserve Vice Chair for Supervision Michelle Bowman said she wants banks "to engage fully in digital assets, if they want to" so that "they're not left behind."
However, she emphasized that it is important for them to do so in a way that ensures safety and soundness. One way banks might achieve that is by separating digital assets on their balance sheets, Bowman said.
"We want to make sure that they're engaging in a way that separates those digital assets on their balance sheet from the regular business activities, so that we can ensure that the safety and soundness remains but that they can also offer those kinds of services that their customer may want," Bowman said.
Without giving a timeframe, Bowman added Tuesday that the Fed is prioritizing implementing the Basel framework, but said that the U.S. will not be adopting the framework's risk weights, which would make holding digital assets costly for banks.
"I have seen how all of this regulation has evolved to be more and more complex," she said. "Now it's time for us to really think about what's reality? What does the future look like? And if it's digital assets, they need to be able to do that, and it can't be risk weighted at 1250% — it's just not realistic."
The second Trump administration has broadly embraced crypto and has ushered in a pro-digital asset regulatory environment that has broadly boosted stablecoins and cryptocurrencies. Amid that backdrop, banks have
Bowman also addressed her outlook on monetary policy, noting that she remains concerned about the "increasingly fragile" labor market. She said this may be a holdover from the pandemic, a time when "it was very difficult for businesses to hire enough skilled workforce, so they overhired at that time."
Bowman added that private-sector payroll data showed negative job growth for September.
"That's where I'm focusing my concern, and when I'm advocating for a rate cut, it's because I see an erosion of potential fragility in the labor market that continues," she said.
She said she is confident the impact of tariffs on inflation will be temporary and noted that the central bank is very close to its 2% inflation target.
Bowman's comments on which side of the Fed's dual mandate to emphasize stand in contrast to other voting members of the Federal Open Market Committee.
In recent speeches, both
"I am committed to reaching our 2% inflation target," Cook said during a speech at the Brookings Institution. "Moreover, I will be prepared to act forcefully if the tariff effects appear to be larger or last longer than expected, or if other evidence emerges that higher levels of inflation are becoming entrenched in expectations."
