Fed Governor signals pro-innovation but anti-regulatory arbitrage position on stablecoin

Fed Governor Michael Barr gave a speech focusing on how the U.S. regulatory framework should evolve to accommodate innovation and Fed's regulatory position on stablecoin. Key takeaways:

1️⃣ Same risk, same regulation

Activities that replicate banking functions (payments, deposits, maturity transformation) should face equivalent prudential standards.

This is a clear pushback against:

- Shadow banking expansion via crypto

- Stablecoin structures operating outside bank regulation

Consistent with tokenized deposits > stablecoins for institutional use cases

2️⃣ Stablecoins = bank-like money → must be regulated as such

Stablecoins raise concerns around:

- Run risk

- Liquidity mismatch

- Payment system contagion

Barr signals preference for:

- Bank-issued or bank-regulated stable money

- Strong reserve, liquidity, and supervision frameworks

3️⃣ Banking system must remain the core of money creation

Emphasis on preserving:

- Role of commercial banks in credit intermediation

- Link between money and the central bank system

Concern:

- Migration of deposits into non-bank digital instruments

➡️ Bottom line

Innovation is encouraged inside the regulatory perimeter

Fed is not anti-crypto/fintech. It supports:

- New payment technologies

- Faster settlement infrastructure

- Tokenization experiments

But the it must occur within:

- Supervised institutions

- Existing risk frameworks

Preference is for incremental upgrades to existing system rather than sudden disruption.

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