Federal Reserve Chair Jerome Powell has called for greater oversight of the cryptocurrency sector, emphasizing that banks must ensure their crypto-related activities remain safe and sound as digital assets continue to evolve. While reaffirming that the Fed is not against innovation, Powell stressed the need for strong risk management and indicated that more regulatory clarity from Congress could benefit the financial system.
His remarks come as U.S. regulators, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), continue to grapple with how to regulate the fast-moving and often volatile crypto industry. The Federal Reserve’s role, Powell noted, is primarily to oversee how banks interact with digital assets, rather than regulate the crypto industry directly.
“Our role with crypto is to look at how banks engage with it,” Powell said during the Federal Open Market Committee (FOMC) press conference. “Banks are perfectly able to serve crypto customers as long as they understand and can manage the risks safely and soundly.”
The Fed’s Role in Crypto Oversight
While the Fed does not regulate cryptocurrencies directly, it does oversee banks and financial institutions that engage in digital asset-related activities. Powell’s comments signal that the Fed remains cautious about widespread bank exposure to crypto, given the history of extreme volatility, regulatory uncertainty, and high-profile collapses like FTX.
The Fed has already taken steps to limit banks’ exposure to crypto risks, including issuing guidance discouraging financial institutions from holding cryptocurrencies on their balance sheets.
Powell made it clear that the bar is high for banks looking to provide crypto custody, trading, or lending services, and any involvement must align with traditional risk management standards.
“The threshold has been a little higher for banks engaging in crypto activities, and that’s because they’re so new,” Powell explained. “We don’t want to make the mistake of allowing risky activities inside banks that are within the federal safety net, which includes deposit insurance.”
Congressional Action Needed for Regulatory Clarity
Powell also hinted at the need for new legislation to clarify crypto regulations, as the industry currently operates in a legal gray area.
“I do think it would be helpful if there were a greater regulatory apparatus around crypto, and I think that’s something Congress was working on quite a lot,” Powell said.
His remarks align with ongoing discussions in Congress about issues such as:
Stablecoin regulation – determining whether issuers should be subject to bank-like oversight to ensure liquidity and consumer protections.
Cryptocurrency taxation – clarifying how digital assets should be taxed, particularly regarding capital gains and staking rewards.
Anti-money laundering (AML) compliance – ensuring crypto firms adhere to Know Your Customer (KYC) and financial crime prevention measures.
Lawmakers have struggled to find bipartisan consensus on crypto regulation, leaving much of the industry subject to enforcement actions rather than clear rules. The SEC and CFTC have taken different approaches to defining crypto assets, with some tokens being classified as securities while others are considered commodities.
Meanwhile, the Biden administration has pushed for stronger federal oversight, including a potential central bank digital currency (CBDC)—a proposal that has faced skepticism from Republican lawmakers and industry advocates.
Crypto Industry Reaction: Banks Face a Higher Bar
Powell’s comments reinforce that traditional banks must tread carefully when offering crypto services. While some financial institutions have embraced digital assets, others have stepped back due to regulatory uncertainty.
For example:JPMorgan and Goldman Sachs have explored crypto trading and custody services but have remained cautious about regulatory risks.
Bank of America and Wells Fargo have limited their direct exposure to crypto markets, citing compliance concerns.
Several smaller banks that were heavily involved in crypto, such as Silvergate and Signature Bank, collapsed in 2023 due to liquidity crises exacerbated by digital asset volatility.
Financial analysts believe the Fed’s strict approach may prevent systemic risks, but it could also slow down U.S. financial innovation in blockchain and digital payments.
“The Fed’s stance makes it clear that banks won’t be getting an easy green light on crypto,” said Kristin Smith, executive director of the Blockchain Association. “Without clear federal regulations, this continued uncertainty could push more innovation offshore.”
Powell’s remarks suggest that while the Fed does not intend to ban crypto, it will continue to limit financial institutions’ exposure until more regulatory certainty is achieved.
If Congress passes new legislation, it could clarify the roles of the SEC, CFTC, and Fed in regulating the industry.
If banks expand crypto services, they will likely face heightened scrutiny and capital requirements to ensure stability.
If the Fed considers a central bank digital currency (CBDC), the debate over government-controlled digital money will likely intensify.
As the crypto industry awaits clearer regulations, Powell’s call for greater oversight underscores the Fed’s cautious approach—balancing innovation with financial stability in an evolving digital economy.
