Fed governor said unclear novel-activity rules left banks in a supervisory void

On June 25, 2023, Federal Reserve Governor Michelle W. Bowman said the supervision of novel banking activities had left financial institutions in a “supervisory void,” specifically identifying digital assets and banking-as-a-service among the areas where permissibility and regulatory expectations remained uncertain.

The statement was not a rule, enforcement action or formal position of the Federal Reserve Board. Bowman expressly said the views were her own. It nevertheless mattered because it placed a sitting governor’s criticism inside the official record at a moment when banks were weighing whether—and under what conditions—they could provide custody, payments, deposit or other services connected to crypto markets.

A call for rules banks could apply

Bowman delivered the remarks at the Salzburg Global Seminar in Austria. Her broader subject was how bank regulation should respond to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank and to the forced merger of Credit Suisse into UBS.

She argued that regulators should concentrate on demonstrated failures involving liquidity, interest-rate exposure, risk management and supervisory execution. Within that framework, Bowman called for a clearly articulated and implementable approach to novel activities.

Her digital-asset point was narrow but consequential. Bowman said general, nonbinding statements could leave banks uncertain about whether an activity was permissible or what controls supervisors expected. First movers could therefore make substantial investments before regulators determined that an activity was impermissible or imposed additional requirements.

That was Bowman’s policy assessment, not a verified finding that every bank faced the same uncertainty. It also was not permission for banks to begin crypto activities without supervisory engagement, legal analysis or adequate controls.

The Fed had already erected guardrails

Bowman’s criticism came against an existing body of cautionary guidance. On January 3, 2023, the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency jointly identified risks involving fraud, legal uncertainty, crypto-asset volatility, contagion, stablecoin runs and deposit flows associated with crypto companies. The agencies said they were assessing whether banks could conduct particular activities safely, soundly and lawfully.

On March 9, 2023, Federal Reserve Vice Chair for Supervision Michael Barr described the central bank’s stance as “careful and cautious.” Barr said supervised banks should establish legal permissibility and adequate controls before commencing crypto-related activities, notify the Federal Reserve and engage in a substantive supervisory conversation.

The two positions were not direct opposites. Barr emphasized risk controls and prior engagement; Bowman argued that engagement also required clearer, more predictable supervisory answers. The tension concerned how regulators translated general safety-and-soundness principles into decisions banks could implement.

Market optimism did not resolve the banking question

The speech coincided with renewed cryptocurrency-market optimism. CoinMarketCap’s historical snapshot for June 25, 2023 recorded bitcoin at $30,480.26, up 15.74% over its seven-day measurement window. That figure is an aggregated reference price rather than an official exchange closing auction; crypto trades continuously, and results vary by venue, currency pair and daily cutoff.

Nothing in the available record establishes that Bowman’s remarks caused that market performance. The speech addressed bank supervision, while the contemporaneous bitcoin rally followed a series of institutional spot-fund filings and other market developments earlier in June.

What changed on June 25—and what did not

The verified development was the public emergence of a significant internal policy critique: a Federal Reserve governor formally argued that uncertainty surrounding digital assets and other novel activities could itself create supervisory and financial-system risks.

No regulation changed on June 25, 2023. The speech did not approve a digital asset, authorize a bank activity, limit the authority of examiners or bind Bowman’s colleagues. As of that date, banks still faced the Federal Reserve’s notification and risk-management expectations, while the boundary between cautious supervision and a workable route to authorization remained unresolved.