The Federal Reserve Board unveiled further details on Tuesday regarding its program to supervise novel activities in the banks it oversees.
These encompass intricate, technology-driven collaborations with non-banking entities to offer banking services, as well as activities involving crypto-assets and distributed ledger or "blockchain" technology.
The primary objective of this program is to cultivate the advantages of financial innovation while identifying and suitably managing risks to guarantee the stability and integrity of the banking system, the Federal Reserve announced.
Program Integration
The program will be assimilated into the Federal Reserve's existing supervisory processes. Experts from the program will work in conjunction with current supervisory teams to monitor banks engaged in these activities.
Guidance On Stablecoin Activity
Additionally, the board provided guidelines on the procedure for a state bank supervised by the Federal Reserve to adhere to before engaging in specific dollar token or stablecoin activities. This includes proving to Federal Reserve supervisors that the bank has adequate safeguards to conduct the activity securely and soundly.
Continued Efforts For Clarity
These announcements are a continuation of the Federal Reserve's ongoing efforts to foster transparency as financial services and related technologies evolve. It builds on the board's policy statement from January, which clarified limitations on certain activities, promoting an even playing field for banks with a federal supervisor.
U.S. Banking Sector Shaken
In related news, the U.S. banking sector experienced a jolt as Moody's downgraded the ratings of 10 U.S. small and mid-sized banks late Monday. The downgrades, which include banks like M&T Bank Corp. (NYSE: MTB) and Webster Financial Corporation (NYSE: WBS), come amid concerns over rising financing costs, potential weaknesses in regulatory capital and increasing risks associated with commercial real estate lending.
The action by Moody's sent shockwaves across the sector, leading to drops in shares of U.S. banks during Tuesday's trading session.
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