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• Regulatory guardrails will help build a resilient crypto financial system
Federal Reserve Vice Chair Lael Brainard said that the cryptocurrency industry needs to be regulated else the industry could become a broader danger to the financial system.
“It is important that the foundations for sound regulation of the crypto-financial system be established now before the crypto ecosystem becomes so large or interconnected that it might pose risks to the stability of the broader financial system,” she said in a speech at a Bank of England conference in London.
“Recent volatility has exposed serious vulnerabilities in the crypto-financial system,” she added, referring to the slump in the crypto market and the collapse of major "stablecoin" TerraUSD.
Brainard said the Fed has been “closely monitoring recent events where risks in the system have crystallized and many crypto investors have suffered losses.” “Strong regulatory guardrails will help enable investors and developers to build a resilient digital-native financial infrastructure,” she said.
“Despite significant investor losses, the crypto financial system does not yet appear to be so large or interconnected with the traditional financial system as to pose a systemic risk,” she added. “This is the right time to establish which crypto activities are permissible for regulated entities and under what constraints so that spillovers to the core financial system remain well contained.”
Source - Federal Reserve
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