The US Federal Reserve has taken a notable step in reshaping how the banks it oversees approach cryptocurrencies, rescinding guidance introduced in 2023 that had significantly restricted such activity.
The decision reflects a broader reassessment within central banks about how regulation should adapt to financial innovation, especially as digital assets continue to intersect with traditional banking infrastructure.
Under the previous framework, uninsured state-chartered banks were required to follow the same restrictions as federally insured institutions in order to remain under Federal Reserve supervision. This approach effectively barred some crypto banks from accessing core payment systems and membership in the Federal Reserve Board.
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What will change for banks due to the policy shift?
The new guidance establishes a formal pathway for both insured and uninsured banks supervised by the Federal Reserve to pursue certain innovative activities, including those related to cryptocurrencies.
Financial institutions will still be required to meet supervisory and risk management standards, but will no longer be automatically excluded based on their business model.
For uninsured banks, the implications are significant. Access to the Federal Reserve allows for direct payments through central bank payment systems, rather than relying on intermediary banks.
The idea has the potential to reduce operational friction for crypto custody, payments, and related services and expand the role of banks in digital asset markets without changing existing safety and soundness expectations.
Custodial lawsuit highlights regulatory tensions
This change in policy has brought renewed attention to Custody Bank, a virtual currency specialist institution whose application for a master account with the Federal Reserve Board was denied due in part to the now rescinded guidance.
Custodia CEO Caitlin Long argued that the 2023 policy effectively blocks legal access to the Fed's infrastructure and welcomed its repeal as a corrective to past regulatory overreach.
Not all policymakers agree. Federal Reserve President Michael Barr opposed the decision, warning that loosening the framework could undermine a level playing field and encourage regulatory arbitrage.
Michael Barr's position highlights the ongoing debate in regulatory circles about how to balance innovation and financial stability.
Widespread impact on virtual currency markets
While the Fed's moves won't directly change how cryptocurrencies like Bitcoin and Ethereum are traded, they could impact market structure over time. Easier access for banks could support deeper institutional participation, increased liquidity, and expanded storage and settlement options.
For now, this change signals a more flexible regulatory stance that acknowledges the rapid evolution of the digital asset market and the banks seeking to serve it.
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