Federal Reserve Withdraws Crypto Guidance for Banks

In a significant development, the Federal Reserve has withdrawn prior guidance that discouraged banks from engaging in crypto-asset and stablecoin activities. 

For context, the Fed issued a supervisory letter in 2022 requiring state member banks to gain approval before engaging in crypto activities, including trading and custody. Then, a 2023 letter established a ‘supervisory non-objection’ process for banks’ engagement in dollar-pegged stablecoins. 

Fed Reverses Crypto Guidance

In a statement, the Fed disclosed that it has scrapped the supervisory letters, which restricted banks’ support for crypto assets. As a result, U.S. banks no longer need to send special notices to the Fed before engaging in crypto activities. The latest policy would likely encourage more banks to explore partnerships in the crypto space or experiment with tokenized dollar systems.

However, the Fed clarified that the withdrawal does not signal an open door for unchecked crypto activity. Instead, they will only monitor banks’ crypto activity as part of their routine supervisory process. Hence, banks will now be expected to adhere to updated supervisory expectations that focus on safety, soundness, and consumer protection. 

Furthermore, the Fed withdrew two statements it made in 2023 in collaboration with the Federal Deposit Insurance Corporation (OCC) and the Office of the Comptroller of the Currency (FDIC). Then, the agencies jointly clarified how banks should manage crypto activity and exposure. Moving forward, the Federal Reserve will collaborate with the agencies to ascertain whether it is appropriate to establish additional guidance to drive innovation in crypto. 

“The Board will work with the agencies to consider whether additional guidance to support innovation, including crypto-asset activities, is appropriate,” the Federal Reserve said.

Industry Reacts

The Fed’s move to rescind most of its anti-crypto guidance has triggered positive reactions from the crypto community. Many view this development as bullish for crypto. This is because the Fed pulling back on special restrictions may make it easier for banks to work with crypto companies and support innovation in the space. 

Strategy’s Michael Saylor noted this via his X post. According to him, the Fed’s withdrawal of its anti-crypto guidance now gives U.S. banks the freedom to support Bitcoin.