Banking Groups Plead with Biden Administration for Bigger Crypto Role

SOURCE: American Banker

The nation's top banking trade associations told the Biden administration that its cautious approach to digital assets is stifling the industry, while the broader crypto sector continues to operate with little government oversight. 

The comments, in response to a request from the Treasury Department in July, reiterate an argument that banks have made for years: that the highly regulated banking sector is one of the safest places to experiment with crypto, rather than its less-regulated nonbank counterparts. 

"The combination of these two approaches – inaction on the one hand to bring into the regulatory perimeter non-bank crypto companies, and limitation on the other of banks' ability to engage responsibly in the digital asset market – creates an environment that makes it nearly impossible for responsible financial innovation to occur in this space, causing it to remain in the Wild West," wrote Brooke Ybarra, head of the American Bankers Association's office of innovation.  

Banks are betting their industry's stricter oversight and stability will appear more enticing for regulators in the wake of the market turmoil that's wiped a huge amount of value from the crypto sector. 

At the same time, however, that caution to date may have played a key role in insulating the traditional financial industry from digital assets' plunging volatility, analysts say. Balancing the banking system's more robust supervision against its broader exposure to the U.S. economy will be key as regulators consider just how involved they want banks to be in the potentially lucrative future of crypto.

"There's money to be made," said Hilary Allen, a law professor at American University and expert on financial stability. "The banking industry has shown us in the past that it can be very short term if there are profits to be made, even if it's potentially very destabilizing in the long-term. That's what we saw in the run-up to 2008, and that's what I worry about happening all over again."