According to reports, the president of the United States, Joe Biden, is demanding the federal banking authority to create stricter rules. He reportedly claimed harsh banking policy would help to protect customer funds by improving banking stability in the country.
Prior to the announcement, the Financial Protection and Innovation department of California closed up the Silicon Valley Bank in early March. The bank reported losing about $42 billion daily due to multiple withdrawal orders via different online platforms.
Hence, Joe Biden called for stricter rules in the regional banking sector to improve their stability and ultimately reduce bank failure risks. Banks are now expected to retain a higher-quality of readily available assets that can be swiftly swapped into cash under stressful financial conditions. This process would help to protect clients’ funds and mitigate market instability.
The new guidelines from the White House can be immediately enforced by the bank authorities like the Federal Reserve without waiting for them to be imbibed into the constitution. Consequently, the new rules can directly impact the conduct of crypto transactions and storage in the state.
According to a White House statistic sheet, the Biden government urges the Fed reserve and other independent firms to tighten their rules. They believe this would help to mitigate banks’ reliance on debt and increase the liquidity pool.
The former US president, Donald Trump, used a bipartisan bill to loosen the grip on oversight banks in 2018. The action changed the meaning of “systemically important” banks to those with at least $250B in crypto assets.
In addition, a Republican policymaker reportedly criticized the Central Bank of the United States for not holding the Silicon Valley Bank responsible for the crisis its instability caused. Also, the chairman of the House of Financial Services Committee, Patrick McHenry, stated that any regulators that fail to use their supervisory tools to mitigate bank failures should be held accountable rather than granted more authority.
Furthermore, the federal head of bank regulation, Michael Barr, suggested a need for more robust capital and liquidity requirements.
The Federal Regulators Mediate Regulations
In 2019 when the Federal government used its authority to twerk these financial rules, it received opposition from many lawmakers like the Chairman of the Federal Deposit Insurance Corporation, Martin Gruenberg.
In addition, the central bank has decided to exclude lenders with about $100 to $250 billion in assets from operating a standardized liquidity range ratio.
This decision has caused a lot of reactions from analysts.
The ratio is used to measure whether a particular lender possesses sufficient high-quality assets to support it during a crisis period. This was lacking in the case of Silicon Valley Bank. As the bank received multiple withdrawal orders, it lost its liquidity assets value and eventually broke down.
To prevent further occurrence of such a crisis, the Biden government is urging for stricter laws for regional banks, especially for those similar to SVB in asset size and operations. His main aim is to protect crypto investors and the general financial sector by mitigating the risk of bank failures.
Crypto Industry Could Profit From Stringent Banking Regulations
Nonetheless, it is very much possible for the crypto industry to indirectly gain from the potential tightening of banking sector rules by the US authorities. This is because stricter banking rules may improve the financial system stability in the country. Consequently, stability would boost investors’ trust in the general financial markets, including the crypto market.
In addition, as the crypto industry continues to grow across the globe massively, tighter regulatory oversight would improve its legal status, encouraging more traditional investors and firms. More so, a more stable and regulated banking sector would help to positively proclaim the potential of the crypto industry as a whole.
Additionally, stringent rules could improve the strength of know-your-customer (KYC) and anti-money laundering (AML) protocols. This would greatly help to mitigate fraudulent activities in the crypto ecosystem and also boost its confidence amongst consumers and investors.
