JPMorgan Chase (NYSE: $JPM) has thrown its support behind the cryptocurrency legislation that’s winding its way through Congress but warned of risks posed from “shadow banking.”
In a blog post, JPMorgan, which is the world’s biggest commercial bank, said it is backing efforts to establish a U.S. regulatory framework for digital assets, but emphasized the risks of crypto.
Peter Muriungi, CEO of Digital Assets and Blockchain Solutions at JPMorgan, argued that the market structure legislation known as the “Clarity Act” needs to close regulatory gaps.
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Much of JPMorgan’s message focuses on what could go wrong with cryptocurrencies if Congress doesn’t get the rules right from the outset.
Throughout the blog post, the bank repeatedly warns that digital assets should not be allowed to sidestep the safeguards that govern traditional financial institutions such as banks.
Muriungi stated that innovation without proper oversight could create new risks for consumers and the broader global financial system.
That said, Muriungi did acknowledge that tokenization and programmable money could make payments faster and reduce settlement times across international borders.
JPMorgan Chase’s biggest criticisms and concerns are reserved for yield-bearing stablecoins, which banks worry could compete against traditional savings accounts.
JPMorgan Chase CEO Jamie Dimon has been a vocal critic of the cryptocurrency industry’s attempt to legislate stablecoin rewards, saying it could lead to “shadow banking.”
Shadow banking refers to financial intermediaries that provide services similar to traditional banks but operate outside of normal banking regulations.
Muriungi reiterates Dimon’s concerns, saying that yield-bearing stablecoins may drift into “shadow banking” and that stablecoins should follow the “supervision standards that accompany traditional deposit products.”
JPM stock has risen 14% in the last 12 months to trade at $331.15 U.S. per share.