Federal Reserve Reverses Crypto Restrictions for State Member Banks

The Federal Reserve Board withdrew a 2023 policy statement on December 17 and issued new guidance to facilitate responsible innovation among Board-supervised state member banks. The previous policy, implemented after the 2022 collapse of FTX, restricted these banks to activities permissible for those supervised by other federal regulators. The board approved the reversal via a 6-to-1 vote on December 12, stating that its understanding of innovative products and the financial system has evolved.

The new framework creates a pathway for both insured and uninsured state member banks to engage in specific innovative activities, provided they maintain safety, soundness, and financial stability. As part of this overhaul, the central bank also scrapped two crypto-restrictive supervisory letters and closed the Novel Activities Supervision Program, integrating digital asset oversight into standard bank supervision.

Vice Chair for Supervision Michelle W. Bowman supported the move, arguing that new technologies provide efficiencies and improved services for customers. Conversely, Governor Michael S. Barr dissented, claiming the 2023 policy maintained a level competitive playing field and that the new guidance could encourage regulatory arbitrage and undermine financial stability.

Digital asset advocates and lawmakers celebrated the shift. Senator Cynthia Lummis and Custodia Bank CEO Caitlin Long described the previous 2023 guidance as Operation Chokepoint 2.0. Long further alleged the former policy was used illegally to deny Custodia's application for a master account.