(Adds detail and context)
By Pete Schroeder
WASHINGTON, March 9 (Reuters) - The top regulatory
official for the U.S. Federal Reserve said cryptocurrency
technology still could have "potential transformative" effects
on the financial system, but needs "guardrails" to realize them.
Fed Vice Chair for Supervision Michael Barr said recent
turmoil in crypto markets make clear the sector could still pose
a risk to traditional banks, but that the impact has been
limited as regulators urge caution.
U.S. bank regulators, including the Fed, have taken several
steps in recent months to ensure banks are approaching the
crypto sector with caution, including requiring banks to flag
any crypto activities to regulators before proceeding, and
warning firms that crypto deposits can be particularly volatile.
"These liquidity concerns are particularly acute for banks
that have a meaningful portion of their balance sheets funded
with such deposits," said Barr in prepared remarks, which came
one day after crypto-focused bank Silvergate Capital Corp (SI.N)
announced plans to liquidate after facing dramatic losses.
Barr stopped short of saying banks have no role to play in
crypto, but rather said regulators are busy figuring out what
firms could do in the space while remaining safe and sound. He
noted that technology behind crypto could make financial markets
and payments systems more efficient and affordable.
"Our goal is to create guardrails, while making room for
innovation that can benefit consumers and the financial system
more broadly," he said.
(Reporting by Pete Schroeder)
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