The US Federal Reserve has shown concern over the risk of market runs on stablecoins in a newly issued report. As per the May 9 report on financial stability, the Fed emphasized stablecoins alongside certain money market funds and bonds as areas of risk in the current financial system, particularly funding.
The Fed’s report reads, “Some types of money market funds (MMFs) and stablecoins remain prone to runs.” Also, funding risks at domestic banks are low, but structural vulnerabilities persist at some money market funds, bond funds, and stablecoins.
The report comes at a time when recently a bipartisan group of lawmakers in Washington presented an updated crypto-related bill focusing on regulating stablecoins as well.
Moreover, in its Financial Stability Report, it also mentioned that market liquidity has declined since late 2021 in the markets for recently issued U.S. cash treasury securities and equity index futures.
The Federal Reserve warned of deteriorating liquidity conditions across major financial markets amid increasing risks from the war in Ukraine. Whereas, it also included monetary tightening and high inflation risk in its semi-annual report published Monday.
Considering all such factors, the crypto regulation concern is in prominence in the policymaking world, particularly since the President’s Working Group put out its report calling for new legislation to limit stablecoin risks back in November.
Last month, President Joe Biden nominated former Ripple advisor Michael Barr as the next Vice Chair for Supervision of the Federal Reserve. The step has been taken to recognize the most important aspect of his background in the crypto industry.
There is still ambiguity regarding crypto-related assets regulation. However, the Financial Stability Oversight Board may step in to supervise stablecoins if Congress doesn’t make new laws addressing the sector.
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