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Bankers Warn Over Probable Shadow Banking System By Facebook

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Bankers Do Not Like Libra

We all know most banks and financial institutions have long held a dislike for Bitcoin and other cryptocurrencies. This is understandable as decentralized virtual currencies take the power of economic decisions out of their hands and put it into the hands of the individual.

Facebook’s crypto project Libra will potentially create a “shadow banking” system, according to the banks at the Federal Advisory Council (FAC).

At the recent Federal Advisory Council meeting, the United States’ biggest banks were asked by the Federal Reserve about their sentiments on Facebook’s cryptocurrency Libra. They are not in favour of the cryptocurrency.

Their collective sentiments say:

“Facebook is potentially creating a digital monetary ecosystem outside of sanctioned financial markets — or a ‘shadow banking’ system. As consumers adopt Libra, more deposits could migrate onto the platform, effectively reducing liquidity, and that disintermediation may further expand into loan and investment services.”

Risk of Libra Reducing Payment Volumes

Libra and similar stablecoin projects, where a digital coin is pegged to an underlying value consisting of one or more fiat currencies. It also pose a possible challenge to the bank business model built on privacy, the banks reportedly said during a quarterly meeting of the FAC earlier in September.


Besides Libra, the banks also presented drawbacks of similar stablecoins. They explained risks associated with stablecoins that were capable of reducing demand-deposit accounts and bank payment volumes, thereby, challenge the bank business model.

The bankers went on and advised regarding Libra, that Facebook could bring implications on national monetary policy as well. The members continued that Libra, particularly, was capable of reducing the ability of states to influence, monitor and manage local economies.

They said:

“As consumers adopt Libra, more deposits could migrate onto the platform, effectively reducing liquidity, and that disintermediation may further expand into loan and investment services.”

Managing Local Economies

The banks want to continue managing the local economies. Also, the banks warned that Facebook’s Libra could impact national monetary policy, citing the “potential to reduce the ability of states to monitor, manage and influence local economies.”

The FAC, which includes 12 representatives of the U.S. banking industry, consults with and advises the Fed Board on economic and financial issues within the Board’s jurisdiction.

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