Blockchain Regulation Could Impact Bank Customers and the U.S. Economy

During a recent event at the Mercatus Center think tank, U.S. Federal Deposit Insurance Corporation (FDIC) vice chair Travis Hill warned that a misguided approach to regulating blockchain technology could have negative consequences for bank customers and the U.S. economy. Hill expressed concerns about the risks the United States is facing and acknowledged the role of the FDIC in addressing these challenges.

Hill highlighted the potential benefits of tokenizing bank deposits and other real-world assets (RWA), emphasizing the ability to facilitate financial transactions with real-time settlement. This innovation could also enable programmable payments, allowing for intraday repurchase exchanges, faster settlement times for bond issuances, and improved transaction efficiency. Programmable payments could offer consumers an alternative to traditional escrow services.

However, Hill also raised important questions about tokenization, such as the use of unified ledgers, blockchain interoperability, and asset ownership rights. He emphasized the need for the U.S. to actively participate in establishing global standards to avoid losing influence in the evolving blockchain landscape.

One key concern discussed by Hill was the potential for programmable payments to increase settlement risks and exacerbate bank runs. To address this issue, he suggested the implementation of an “off” switch to prevent rapid asset movements that could destabilize financial institutions.

Reflecting on past regulatory efforts, Hill criticized the lack of consistency in policy implementation and emphasized the importance of clear guidance for financial institutions. He highlighted the challenges faced by institutions in complying with existing regulations and called for a more streamlined and equitable approach to blockchain regulation.

Specifically, Hill pointed out the need for regulators to provide guidance on treating all forms of deposits equally, regardless of whether they involve RWAs or cryptocurrencies. He also criticized the SEC’s approach to crypto assets, citing the broad definition used in the controversial Staff Accounting Bulletin 121 (SAB 121) that could encompass tokenized RWAs.

As blockchain technology continues to reshape various industries, including real estate, the need for coherent and proactive regulatory frameworks becomes increasingly apparent. By addressing these challenges effectively, regulators can support innovation while safeguarding the interests of bank customers and the broader U.S. economy.

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