Kevin Warsh Says Fed Is Not In The 'Bailout Business' If Crypto, Stablecoins Fail

• Fed Chair Kevin Warsh’s comments came as he was answering inquiries from Congress on whether the Fed would backstop stablecoins or cryptocurrency in a run scenario.
• Warsh said the 2008 financial crisis left an indelible mark, adding that a repeat is something the Fed wants to avoid.
• He added that the Fed does not want to be in the bailout business and would seek to limit extreme risks without rescuing any firm, including crypto.

Federal Reserve Chair Kevin Warsh told lawmakers on Tuesday that the central bank will not bail out stablecoin or cryptocurrency enterprises in a crisis, citing his experience during the 2008 financial crisis as a reason for caution.

Warsh testified before the House Financial Services Committee, where Representative Brad Sherman (D-CA) asked if the Fed would set up liquidity facilities for stablecoins or crypto if investors flocked to pull funds, as it has for money market funds in past crises. 

"I still have the scars from the 2008 financial crisis," Warsh said. "That is not something we want to repeat." Warsh added that the Fed does "not want to be in the bailout business. Full stop." 

When pressed again on whether the Fed would come to the rescue for crypto as it did for money market funds in 2008, Warsh said the Fed would do its best to limit risks but wouldn’t bail out any firms.

"We're going to do everything we can to mitigate those sorts of extraordinary risks, if and when they were to come in the next four years," Warsh said. "We want to be in a position where we are not bailing out anybody, including crypto."

Stablecoin Rulemaking Deadline

Warsh was asked by Representative Bryan Steil (R-WI) if the Federal Reserve would meet a deadline on Saturday to release rules under the GENIUS Act, the stablecoin law that was signed into law a year ago. Warsh didn't make a direct promise, but he did say that the Fed wanted to work with other bank regulators to make rules. 

"That's a fair and open question," Warsh said. "I think rulemakings from the bank regulators are best when we have a family fight between and among us, so that there would be one proposed rulemaking for comment. It might not be exactly true this time, but that's my objective, that we'd be coordinating, issuing our rulemakings at the same moment."

Speculative Bubbles And Debanking

Warsh was questioned by Representative Al Green (D-TX) about speculative bubbles. Green used President Trump's meme coin to make his point, saying that lower interest rates encourage speculative trade. In general, Warsh said the Fed wasn't fully responsible for overseeing financial stability. 

"We want a resilient, strong, safe financial system, and we are looking at financial markets, and we're looking at the real economy to make sure we deliver on what we can," Warsh said. "Some of these other subjects are really more in your purview and responsibility."

Representative Barry Loudermilk (R-GA) also asked Warsh what could be done to stop "reputation risk" from being used to shut down energy and digital asset companies. This is a reference to what Republicans have called "Operation Choke Point 2.0." Warsh said the Fed had already removed reputational risk from its advice to supervisors.

"Reputational risk has been removed from the dashboard that supervisors and regulators will have anything to do with," Warsh said. "My view is that being a good supervisor and regulator is tough business, and we don't need to make it harder by bringing politics into it."

Bitcoin’s price (BTC) was $64,657, up over 4% in the last 24 hours. On Stocktwits, retail sentiment around BTC remained in the ‘bearish’ zone, while chatter stayed at ‘low’ levels over the past day.

Read also: Hut 8 Stock Hits One-Month Low – Analyst Doubles Price Target Amid The Dip

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