Today at a Brookings event in Washington, D.C., Federal Deposit Insurance Corporation (FDIC) Acting Chairman Martin Gruenberg discussed his government purview and how crypto assets are and should be addressed by banks. Video of the event is here.
Though recognizing blockchain’s innovative qualities, he largely saw huge risk to the banking system from crypto and suggested there is broader FDIC guidance forthcoming.
As he began, Gruenberg noted that innovation is a double-edged sword saying that financial products such as credit default swaps were seen as innovative, but helped cause the Great Financial Crisis in 2008-9. The accessibility and convenience of crypto was attractive to consumers and banks, but Gruenberg believed it was difficult for the banks to move quickly given the dynamic nature of the new assets as tech, business model and use cases are subject to change in short order.
Don’t mix the message
For background, in late July, the FDIC released guidance on how banks should deal with the crypto ecosystem. The over-arching concern from the FDIC was the consumer believing they are insured when they are not. According to the FDIC, non-banks were offering uninsured crypto asset products and insured bank deposit products but that doesn’t mean for the consumer using these products that their crypto product or asset is insured.
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In his speech, Acting Chairman Gruenberg claimed that consumers are often finding they have no one to turn to with distributed ledger technology. If something goes wrong, transactions were difficult to track on the blockchain – a contradiction of pro-crypto advocates who claim it is trackable, sometimes too trackable and presents privacy challenges.
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