The US Federal Reserve has withdrawn a 2023 policy that limited how banks under its supervision could engage with cryptocurrencies, signaling a notable shift in the regulator’s stance as its understanding of digital assets and financial innovation evolves.
Fed Says 2023 Crypto Guidance Is Now Outdated
In a recent statement, the Federal Reserve confirmed it has pulled back guidance issued in 2023 that placed strict limits on crypto related activities by Fed supervised banks, including those without federal deposit insurance. At the time, the policy required uninsured banks to follow the same rules as insured institutions under the idea that similar activities carry similar risks.
That approach effectively blocked uninsured banks from offering crypto services that were not permitted for national banks. As a result, institutions whose primary business involved digital assets were automatically disqualified from Federal Reserve membership, shutting them out of key banking infrastructure.
Evolving Views Open the Door for Crypto Focused Banks
The Fed said the decision to withdraw the guidance reflects changes in both the financial system and the regulator’s understanding of emerging technologies. According to the central bank, the earlier policy is no longer suitable given how innovation in financial products and services has progressed.
Custodia Bank CEO Caitlin Long welcomed the move, noting in a social media post that the 2023 guidance played a key role in the rejection of her bank’s application for a Federal Reserve master account. Such an account allows institutions to hold balances directly with the Fed and access its core payment systems without relying on intermediary banks.
New Framework Aims to Support Responsible Innovation
Alongside scrapping the old guidance, the Federal Reserve introduced a new framework that creates a formal pathway for both insured and uninsured state member banks to pursue innovative activities, including crypto services. Banks will be allowed to move forward provided they meet the Fed’s risk management expectations.
Fed Vice Chair for Supervision Michelle Bowman said the updated approach is designed to balance safety with progress, helping the banking system remain secure while also modern and efficient. However, the decision was not unanimous. Fed Governor Michael Barr dissented, warning that easing the rules could encourage regulatory arbitrage and weaken the level playing field across the banking sector.