Fed Chair Powell Reasserts Banks Can Offer Crypto Services, But Must Control the Risks

Speaking at a press conference, Powell stated banks must ensure their crypto activities stay safe given the dangers tied to digital assets.

Federal Reserve Chair Jerome Powell stated on Wednesday that banks can offer cryptocurrency services as long as they manage the risks involved.

Powell made the remarks during a press conference, where he also highlighted the dangers tied to digital assets and the need for banks to ensure their crypto activities remain safe.

“We're not against innovation,” Powell said. “And we certainly don't want to take actions that would cause banks to terminate customers who are perfectly legal just because of excess risk aversion.”

Powell's comments come amid efforts by U.S. regulators to discourage banks from working with crypto firms. Following a court order, the Federal Deposit Insurance Corporation (FDIC) sent letters to banks expressing an interest in crypto services, instructing them to pause operations without formal approval.

Coinbase filed the legal case that led to the disclosures, seeking evidence of crypto-related “de-banking.” While the letters did not indicate widespread de-banking, the incoming acting chairman of the FDIC has acknowledged the issue.

A Congressional committee has also launched an investigation into whether regulatory bodies pressured banks to cut ties with crypto companies, echoing an earlier probe into Operation Choke Point, which resulted in banking restrictions for certain industries due to regulatory concerns.

Despite Powell's assurances, FOX Business journalist Eleanor Terrett suggests his comments may have carried a subtly discouraging undertone.

A source from a major bank, speaking to FOX Business, interpreted Powell's statement as, “I wouldn't do it [serve crypto customers], but you [banks] make your own decisions.”

According to the source, Powell's remarks imply that banks are free to engage with crypto at their own risk, with a subtle warning against doing so.

The source also noted that while banks are eager to serve crypto customers, the regulatory uncertainty causes many institutions to tread carefully, fearing potential repercussions from authorities.

Powell's statement also included confirmation that some banks have already engaged in crypto-related services. However, he emphasized that banks operating within the Federal safety net, such as those with deposit insurance, must exercise extra caution.

“The threshold has been a little higher for banks engaging in crypto activities because they're so new,” Powell said.

When asked about consumer protection, Powell stated that financial education is crucial, but it is not the Federal Reserve's role to regulate individual investments. Instead, he pointed to ongoing discussions in Congress about establishing a stronger regulatory framework for crypto.

“We've actually spent a lot of time working with members of Congress on this,” Powell said. “I think it would be a very constructive thing for Congress to do.”