The US Federal Reserve will meet on May 30 to discuss about making amendments to the Volcker rule, which prohibits banks from using public deposits, protected by insurance, to trade in traditional volatile markets. Weiss Ratings, the autonomous rating agency has opined that a decision to water down the Volcker rule will fuel investments in cryptocurrency market.
Weiss Ratings, in its blog, stated
“They want to make it easier for megabanks to take big risks with other people’s money—our money. They want to give banks the green light to trade more of the same kinds of assets that helped cause the 2008 debt crisis.”
Martin Weiss, founder of Weiss Ratings, and Juan Villaverde, an econometrician and mathematician devoted to the analysis of cryptocurrencies since 2012, believe that any decision to unwind the current limitations on the US banks with regards to their activities in the capital markets will result in another financial crisis, far worse than 2008.
A decade before banks resorted to misselling of complex financial derivative instruments based on mortgage-backed loans. As the real estate markets collapsed, investors were left with financial instruments which had practically no value, setting up a chain reaction across the world. Lehman Brothers was one of the major institutions which collapsed due to the financial crisis.
Weiss and Villaverde added.
“There was, and still is, an over-reliance on megabanks—not only as depository institutions and custodians, but also as a major source of liquidity for global capital markets.”
Both Weiss and Villaverde believe that cryptocurrencies should be promoted as a means of savings.
“Cryptocurrencies do such a fundamentally better job as a safe depository, it’s difficult to envision a world in which this technology does not become a game-changer for money and banking.”
A recent survey indicated that 65% of the American millennial believe Bitcoin to be a safer investment than personal savings accounts offered by banks. The cryptocurrency market may turn jubilant, if the Fed unchains the banks in the US on May 30.