Ravi Menon: Crypto tokens - the good, the bad, and the ugly Speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at Money20/20, Singapore, 15 March 2018. * * * Ladies and gentlemen, good afternoon. And to all our foreign guests, welcome to Singapore. This is a conference named after Money. Money has been with us for at least 5000 years. And over the last 300 years or so, we have come to accept Money as being issued by central banks whose mission in life is to safeguard its value. Now, along comes a new phenomenon – crypto money or currency or asset. The past year has seen explosive growth in the trading and use of these crypto assets. We have also seen a rollercoaster ride in their prices. Bitcoin – the most well-known of the crypto currencies or assets – hit a high of nearly $ 000 in December last year. And then lost two-thirds of its value in just over a month. MAS has been watching the crypto space with great interest. Our views are still evolving but let me share with you the current state of our thinking and our evolving regulatory approach. I will use the more generic term “crypto tokens” rather than “crypto currencies” or “crypto assets”. Crypto tokens began life as the medium of exchange within the blockchain ecosystem. But the token has now assumed a life of its own, outside the blockchain. Are crypto tokens money?
In my remarks today, I want to focus on one particular post-crisis change, the introduction of supervisory stress testing, as embodied in CCAR and the stress tests required by the DoddFrank Act (DFAST). In my personal view, supervisory stress testing and the CCAR are the most significant and impactful of the many regulatory and supervisory changes implemented following the global financial crisis. The CCAR and stress testing introduced a forward-looking perspective to capital adequacy and capital planning, something that static book-value-based regulatory capital measures lacked. We felt this acutely during the financial crisis, when market values of bank equity plunged while book values evolved only very slowly, based on accounting measures of losses. Aside from the stress-test-based quantitative requirements, the CCAR also requires large complex banks to do systematic capital planning, including developing criteria for when dividends and share repurchases will be made, increased or curtailed. This is an important innovation, as banks were slow to reduce dividends during the financial crisis, even as losses mounted and share prices fell.1 I want to examine supervisory stress testing through the lens of a paper I wrote in 2009 with former colleague Til Schuermann and current colleague Kevin Stiroh, now head of the New York Fed’s Supervision Group.2 That paper looked at the very first set of stress tests conducted by the Federal Reserve and other federal banking supervisors. The Supervisory Capital Assessment Program, or SCAP, was a watershed moment in the financial crisis.