The Federal Reserve has withdrawn a 2023 policy that restricted certain banks' involvement in crypto activities, citing evolving understandings of financial innovation. The move distinguishes between insured and uninsured state member banks, potentially allowing the latter more flexibility in crypto operations. This change comes amid recent legal and legislative wins for special purpose depository institutions in the crypto space.
The Federal Reserve announced on Wednesday that it has rescinded a policy statement from 2023, which had aimed to limit crypto-asset activities for state member banks supervised by the board. That earlier guidance prohibited such banks from engaging in crypto pursuits not permitted by other federal regulators, reflecting concerns over risks to financial stability during the Biden administration.
In its place, the Fed issued new guidance that emphasizes facilitating innovation while maintaining safety. It differentiates between insured state member banks and uninsured ones, such as special purpose depository institutions (SPDIs). Uninsured state member banks may now receive board approval for crypto activities, provided they align with principles of bank safety, soundness, and the overall stability of the U.S. financial system.
This shift highlights the role of institutions like Custodia, a Wyoming-chartered SPDI that sued the Fed after its master account application was denied under the previous administration. SPDIs have seen advancements in the second Trump administration, including the enactment of the GENIUS stablecoin bill. This legislation enables SPDIs to operate across states without needing approval from each host state's banking regulator.
Vice Chair for Supervision Michelle Bowman welcomed the update, stating, "New technologies offer efficiencies to banks and improved products and services to bank customers. By creating a pathway for responsible, innovative products and services, the Board is helping ensure that the banking sector remains safe and sound while also modern, efficient, and effective."
However, Fed Governor Michael Barr dissented, arguing that the 2023 policy—adopted unanimously—upheld equal regulatory treatment for similar risks across banks. "This principle of equal treatment helps to level the competitive playing field among banks with different charters and different federal supervisors, mitigating the risks of regulatory arbitrage," Barr said. He warned that the new approach could encourage arbitrage, undermine fairness, and misalign incentives with financial stability goals.
The decision reflects broader changes in how regulators view crypto integration into traditional banking, potentially easing barriers for innovation-focused entities while sparking debate over consistent oversight.
