Digital assets belong in traditional banking, ex-U.S. regulator says

More crypto business and innovation should be moved into the traditional banking industry, at least according to some bankers and a former bank regulator.

“The federal government doesn’t want basically unregulated third parties basically creating their own currency,” Gene Ludwig, a former top U.S. banking regulator who now runs a regulatory consultancy firm, said at the Bank Policy Institute annual conference in New York on Tuesday.

Instead of experimenting with a central bank digital currency, regulators should “allow banks to play more aggressively in the crypto market,” Ludwig said. “If we’re going to allow crypto at all, the banking industry is the right place to do it, because it is regulated.»

The comments come in the midst of a ‘winter’ for crypto markets with asset prices slumping, and increased scrutiny of digital assets and the firms that deal in them by financial regulators.
Thomas Michaud, president and CEO of the investment bank Keefe, Bruyette & Woods, contrasted the financial performance of banks amid rising interest rates and other economic adversity this year with that of the failures of multiple cryptocurrency startups. “I think this should be inside the banking industry more,” he said, because of the regulatory framework around banking.

But regulators might view increased exposure to digital assets warily, cautioned Jeremiah Norton, managing member of Chain Bridge Partners, a regulatory advisory firm.

“I think the coin argument is the most tricky and fraught with peril,” said Norton, with U.S. regulators telling banks, «‘If you’re thinking about thinking about crypto, come to us first.’”

“I don’t see a lot of running room for algorithmic players in the regulated space anytime soon,» Norton said.

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