Federal Reserve Repeals Guidance, Expands Access to Crypto Activities
The Federal Reserve has withdrawn its 2023 guidance that restricted certain banks, including uninsured government institutions, from engaging in crypto-related activities on the same terms as government-insured counterparties. This decision marks a significant shift in the Fed’s approach to cryptocurrency and digital asset activities. 
The repealed guidance had prevented uninsured federally chartered banks from engaging in crypto-related activities under Federal Reserve supervision. The new policy offers crypto-native banks a formal way to join the Fed and process payments directly without relying on intermediaries. According to the Fed, the decision to repeal the 2023 policy was based on the view that it was outdated and that both the financial system and the board’s understanding of innovative products and services had “evolved” over the years.
Implications of the New Policy
The new policy statement creates an opportunity for both insured and uninsured state member banks supervised by the board to engage in certain innovative activities, including cryptocurrencies, as long as they meet regulators’ expectations. Under the 2023 framework, uninsured banks that primarily engaged in activities not permitted for national banks were required to follow the same restrictions as insured institutions, even if their own charters provided otherwise. This effectively excluded these institutions from Fed membership and critical payments infrastructure.
Custodia Bank, which specializes in cryptocurrency custody and does not have FDIC insurance, had applied for a Fed master account back in 2020. However, at the time, a U.S. District Court for the District of Wyoming dismissed Custodia’s case after the Fed cited the very guidelines that have now been overturned. Caitlin Long, CEO of Custodia Bank, hailed the latest decision as a long-overdue correction and criticized Fed Governor Michael Barr for rejecting the updated guidance.
Regulatory Arbitrage and Financial Stability
In a separate statement, Barr defended the 2023 policy, arguing that treating all banks equally “helps level the playing field” and curb regulatory arbitrage. However, Long hit back, stating that the Fed “violated the law by relying on this guidance” while the custody rejection process was taking place, pointing out that the guidance had not even become official at this point. The debate highlights the complexities and challenges of regulating innovative financial products and services.
Under the new policy, uninsured banks can now apply for membership with the Federal Reserve without being automatically disqualified based on their primary business model. This would give them direct access to central banks’ payment systems and allow them to process transactions without relying on intermediary institutions. Michelle W. Bowman, vice chairwoman for supervision, noted that “new technologies provide banks with efficiencies and bank customers with improved products and services.”
As the regulatory landscape continues to evolve, the Fed is preparing for the growth of crypto and digital assets. Bowman said she would push for new regulations that would govern both banks and stablecoin issuers to create a more competitive and responsible environment. For more information, visit https://crypto.news/federal-reserve-scraps-old-crypto-policy-opens-access-to-digital-asset-activities/
