The Fed official stated:
“Your industry [crypto] has already experienced significant frictions with bank regulators applying unclear standards, conflicting guidance, and inconsistent regulatory interpretations.”
Bowman emphasized that banks should not face penalties for serving customers conducting lawful business operations, stating that customer selection decisions “lie solely within the purview of bank management” rather than regulatory interference.
Furthermore, she noted the Fed’s transition from an “overly cautious mindset” toward embracing blockchain technology within the traditional banking system.
She warned that regulators must choose between shaping technological frameworks or allowing innovations to bypass banks entirely, potentially diminishing the banking sector’s economic relevance.
The Fed is updating examination manuals and supervisory materials to ensure lasting implementation of the reputational risk removal policy.
The Fed Vice Chair established four core principles guiding the central bank’s new approach to digital asset regulation.
Regulatory certainty tops the list, addressing industry concerns about investing in blockchain development without clear supervisory standards.
Bowman questioned whether companies would partner with banks, knowing that regulatory scrutiny brings uncertainty, rather than pursuing alternatives outside the banking system.
Tailored regulation forms the second principle, requiring supervisors to evaluate use cases based on specific circumstances rather than applying worst-case scenario expectations.
The Fed must recognize unique features distinguishing digital assets from traditional financial instruments while avoiding one-size-fits-all approaches that fail to address actual risk profiles.
Consumer protection represents the third principle, ensuring customer-facing products comply with existing consumer protection laws, including prohibitions against unfair, deceptive, or abusive practices.
Digital asset frameworks must incorporate Bank Secrecy Act and anti-money laundering requirements while maintaining bank safety and soundness standards.
American competitiveness completes the framework, positioning the US as the premier global innovation destination. Bowman warned that failing to establish appropriate regulatory structures could jeopardize long-term American leadership in financial technology development.
Bowman announced the Fed’s “novel supervision” activities will be reintegrated into Reserve Bank examination staff, reestablishing normal supervisory processes for monitoring banks’ innovative activities.
She proposed allowing Federal Reserve staff to hold minimal digital assets to develop a working understanding of blockchain functionality, comparing the necessity to hands-on learning rather than theoretical knowledge.
[Editor’s Note: This is an abrupt U-turn from previous government approaches, notably those of former SEC Chair Gary Gensler. Gensler taught college-level blockchain courses at MIT yet never actually touched a blockchain with his own funds, having admitted to never holding any digital assets and, therefore, never executing his own transactions.]
The Fed recognizes tokenization potential for facilitating faster asset ownership transfers while reducing transaction costs and settlement risks. Bowman noted that banks of all sizes, including community institutions, can benefit from efficiency gains flowing from asset tokenization technology.
Bowman called for industry engagement to help regulators understand blockchain’s capacity for solving additional problems beyond current use cases.
She specifically requested input on leveraging new technologies to combat fraud, identifying this as an exciting collaboration opportunity between the Fed and the digital asset sector.
The Fed Vice Chair concluded that innovation and regulation complement rather than oppose each other in creating more modern, efficient financial systems.
