Facebook Will Create A ‘Shadow Banking’ System: Major US Banks

The Libra coin news today show that the banks at the Federal Advisory Council (FAC) in the United States believe that Facebook will create a “shadow banking system.” After the United States Federal Reserve asked some of the biggest banks in the nation about Libra, the banks voiced their negative stance towards the project.

The banks are now featured in the crypto news for expressing their opinion about the project and also outlining the risks of potential decline in demand-deposit accounts and bank payment volumes. All of this is found in the new Bloomberg report published on September 30.

The report shows that Libra and similar stablecoin projects, where a digital coin is pegged to an underlying value that consists of one or more fiat currencies, also pose a possible challenge to the bank business model that is built upon privacy. This is what the banks said, knowing that Facebook will create a coin of this type.

In fact, it was the quarterly meeting of the FAC earlier in September when the banks started reviewing the Libra coin. They noted that about 52% of the entire US population (170 million people) were considered active Facebook users in 2018. From this, the banks suggested that Facebook will create a digital monetary system which is outside of any sanctioned financial markets – thereby labelling it as 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,” the banks argued.

In addition to this, the Libra latest news show that banks are warning users that Facebook’s stablecoin project could negatively impact national monetary policies, citing its “potential to reduce the ability of states to monitor, manage and influence local economies.”

The FAC, which includes 12 members of the US banking industry, is actively consulting with and advising the Fed Board on the economic and financial issues within the Board’s jurisdiction. Now that FAC thinks that Facebook will create a system which is out of any legislation (with its Libra project), analysts are uncertain about the future of the coin.

As a reminder, on September 26 Bloomberg reported about Facebook planning to get its chief operating officer (COO) Sheryl Sandberg in front of the House Financial Services Committee in October to testify on Libra and the plans to launch the stablecoin in 2020.