Federal Reserve Vice Chair for Supervision Michelle Bowman has urged banks to embrace blockchain technology or risk losing their relevance in the evolving financial system.
Speaking at the Wyoming Blockchain Symposium on August 19, Bowman called for both regulators and financial institutions to take a more proactive stance toward innovation in the crypto and blockchain space.
“It is essential that banks and regulators are open to engaging in new technologies and departing from an overly cautious mindset,” Bowman said. “Regulators must understand new products and services and recognize the utility and necessity of embracing technology in the traditional financial sector.”
She emphasized that adopting blockchain is not optional but necessary for the long-term vitality of the banking system. Institutions that fail to adapt could find themselves sidelined, while those that embrace innovation may gain a stronger foothold in the market.
Tokenization as a Key Use Case
Bowman identified tokenization—digitizing real-world assets—as one of the most practical and immediate applications of blockchain for banks. She noted that tokenized assets can be transferred without intermediaries or the need for physical delivery, reducing delays, manual processes, and operational risks.
“Tokenized systems can reduce friction, streamline operations, and expand access across financial markets,” she said.
She added that clearer regulatory support could help move tokenization from limited pilot programs to mainstream use, benefiting not just large institutions but also smaller community banks.
Blockchain for Fighting Fraud
In addition to its operational advantages, Bowman pointed to blockchain’s potential for combating fraud—an area of growing concern for financial institutions facing identity theft and scams.
“If fraud can be addressed using new technology, we should make sure that the regulatory framework does not stand in the way,” Bowman said. “I see this as an exciting opportunity for collaboration between industry and the Fed.”
Her remarks signal a shift in tone from the Fed, encouraging innovation and collaboration between regulators and the banking sector as blockchain technology gains traction in traditional finance.
Featured image from: cointelegraph.com