Fed Governor Michelle Bowman Urges Banks to Embrace Blockchain and AI, Signaling Shift in Crypto Regulation

'Change Is Coming': Michelle Bowman Signals Fed's Openness to Crypto

Fed abolishes reputational risks penalties to enhance the relationships of banks with digital asset companies. Federal Reserve Governor Michelle Bowman warned that banks risk irrelevance if they resist blockchain, artificial intelligence, and crypto adoption. She said regulators are now building a digital asset framework to expand banking access and remove outdated supervisory barriers. Michelle Bowman Warns Against "Overly Cautious Approach" to Crypto Innovation In her official remarks at the Wyoming Blockchain Symposium, Michelle Bowman said regulators should allow innovation to flourish in ways that strengthen financial services. She stressed that bank regulators are already taking important steps to create a framework for digital assets and the adoption of blockchain within the banking system. She said these steps will expand access to banking services and remove supervisory obstacles that have hindered relationships between banks and innovators. Bowman added that she is encouraged by technology's ability to solve problems and improve financial efficiency. Bowman warned that an overly cautious approach could leave banks sidelined as consumers and businesses adopt faster, cheaper, and more efficient alternatives. She said the Federal Reserve is committed to shifting its culture toward openness, emphasizing that outdated frameworks should not block new products and services. Another part of her message was on the growing importance of tokenization. Michelle Bowman said tokenized assets could transform ownership transfers, reduce costs, and increase access to capital markets. She added that the banks, even the community ones, would benefit from near real-time transactions achieved through tokenization. Bowman also pointed out the role of stablecoins after the GENIUS Act was passed. She indicated that stablecoins could help expand payment systems available to banks. According to Bowman, regulators must ensure that rules governing stablecoins are clear, fair, and tailored to actual risks. Bowman Calls for Balanced AI Oversight and Announces End to "Reputational Risk" Penalties Michelle Bowman also called for a balanced approach toward AI oversight. Artificial intelligence was also discussed by Michelle Bowman. She indicated that AI would allow banks to do a better job of detecting fraud, managing risk, and offering improved customer service. However, she further said that AI can bring about new risks, which makes it necessary to have a balanced oversight. This change remove barriers that have limited banks from engaging with digital asset firms. Bowman cited a recent discussion with OpenAI CEO Sam Altman. She noted that the technology's dual use (both to protect and exploit financial systems) requires regulators to stay engaged. Furthermore, Bowman announced a major policy shift regarding "reputational risk." She confirmed that the Fed will no longer allow examiners to penalize banks for serving legal businesses based on subjective concerns. She added that this change will remove barriers that have limited banks from engaging with digital asset firms. Michelle Bowman called for continuous dialogue between regulators, banks, and technology developers to ensure that innovation strengthens the nation's financial system.

Fed Governor Michelle Bowman: US Must Embrace Tokenization and Stablecoins or Risk Falling Behind

U.S. Fed governor urges banks to embrace Web3. | Credit: Chip Somodevilla/Getty Images. * The U.S. Federal Reserve is working on digital asset frameworks for tokenized assets and stablecoins. * Michelle Bowman says stablecoins will become a "fixture" in the modern economy. * The U.S. is implementing sweeping regulatory reforms for crypto and stablecoins through the GENIUS and CLARITY Acts. Federal Reserve Governor Michelle Bowman is calling for the U.S. banking system to embrace blockchain, crypto, AI, and Web3 technologies, or risk falling into irrelevance. Embrace Web3 Speaking at the Wyoming Blockchain Symposium 2025, Bowman urged bankers and institutions to innovate and adopt new tech as the U.S. begins to implement pro-crypto and pro-innovation regulations for the digital asset sector. She was critical of the "overly cautious approach" taken by traditional financial institutions and argued that the outdated legacy barriers and attitudes need to be stripped away if they want to remain competitive. Now, the Fed is working on developing a comprehensive framework for digital assets, which it hopes will bridge traditional and decentralized finance together. Stablecoins and Tokenization She begins by highlighting the potential of tokenization within the U.S. banking system, which could boost the speed and security of asset transfer. Furthermore, tokenization could remove the need for escrow and manual processing, making things faster, cheaper, and lowering the risk of transaction failures. She adds: "Tokenized assets enable a transferor to pass title without changing a custodian or moving any physical security or asset." With regards to stablecoins, she notes that they're now at the center of "many discussions" since the GENIUS Act was signed into law. Bowman explains that now, they're set to become a "fixture in the financial system", creating major "implications and opportunities" for legacy banking. "Congress tasked the banking agencies with creating a regulatory framework for stablecoins, and we are working with our colleagues in the other agencies to move forward." Fascinatingly, Bowman confirmed that the Fed is working on building out a comprehensive regulatory framework, in collaboration with banks and regulators, to fully realise the tech's potential. "We stand at a crossroads: we can either seize the opportunity to shape the future or risk being left behind." Therefore, Bowman concludes it is now necessary to embrace change and build a reliable, durable regulatory framework.