Fed Vice Chair Pick and Ex-Ripple Adviser Tells Senators Crypto Needs Regulation

Michael Barr, a former Ripple adviser nominated by President Joe Biden to run the Federal Reserve’s oversight of the U.S. financial sector, sees cryptocurrency technology offering “some potential for upside and also some significant risks,” he said during a Senate hearing Thursday. While his time on the board of advisers at Ripple wasn’t raised during his opening testimony at a Senate Banking Committee hearing on his confirmation, Barr – now dean of the public policy arm of the University of Michigan Law School – was asked about his thoughts on current troubles in the crypto industry.

“In issues such as stablecoins there could be financial stability risks, and I think it’s quite important that Congress and regulatory agencies wrap their arms around those financial stability risks and regulate,” he said.

As for crypto that people treat as investments, the main concern is investor protection, he said, “and that really is the responsibility of other agencies.”

If confirmed by the Senate, the former senior official in the U.S. Department of the Treasury will be the Fed’s next vice chairman for supervision and will occupy a key role in what happens next with stablecoins. He’ll also have input on the Fed’s decision about whether to launch a digital dollar, which he said should have sign-off from Congress and the Biden administration before the Fed makes a decision.

The Thursday hearing also weighed the confirmations of Jaime Lizárraga and Mark Uyeda to join the Securities and Exchange Commission, where Chairman Gary Gensler has been occupying a major role in the government’s response to the rapid growth of the crypto industry.

Uyeda, an SEC lawyer who has been detailed to work with the committee's Republican staff, fielded a question on the agency's recent accounting guidance that spurred Coinbase (COIN) to warn customers that their digital assets could be locked up were the company to file for bankruptcy protection. The nominee argued that the SEC's bulletin was only a staff position that didn't get commission approval. He raised the point that adding any new policy at the SEC "that is effectively a rule" needs to go through the proper notice-and-comment process as well as a formal vote.

"There has been a tremendous amount of concern raised," he said. "If confirmed, it is something that I will want to look much more into and have a discussion with the staff."

That custody question has influenced the Biden administration to press Congress to require crypto exchanges segregate their customers' funds from their own, CoinDesk reported earlier.

Sen. Elizabeth Warren (D-Mass.) raised questions about cryptocurrencies and investor protections to all three nominees, pointing to last week’s TerraUSD meltdown: "Turns out, [UST] was not so stable. If you put $1,000 in Terra 10 days ago, you'd get back $90."

"Online investor forums have been flooded with harrowing posts” from investors who lost their life savings, she said, adding that it “smells a lot like 2008."

Even asset-backed stablecoins like tether USDT$1.0001 briefly lost their peg, she said, before asking if stablecoins are providing auditing disclosures about their reserves. Uyeda said they are not.

UPDATE (May 19, 2022, 18:45 UTC): Adds comment from SEC nominee Uyeda tied to Coinbase's recent disclosure about customer assets.