US Fed Lifts Restrictions on Banks Engaging with Cryptocurrency

The US Federal Reserve has withdrawn a 2023 guidance that limited how Fed-supervised banks, including uninsured ones, engaged with cryptocurrency. This guidance required uninsured banks to follow the same rules as federally insured institutions, preventing them from offering crypto services.

The Fed stated that the financial system has evolved since 2023, and the previous policy statement is now considered outdated. Caitlin Long, CEO of Custodia Bank, praised the move, noting that the 2023 guidance was a reason her institution's application for a master account was denied.

A master account allows banks to hold balances directly with the US central bank. The Fed's new guidance establishes a formal pathway for both insured and uninsured state member banks to pursue innovative activities like cryptocurrencies, provided they meet risk-management expectations.

Fed Vice Chair for Supervision Michelle Bowman emphasized that this initiative will help maintain a safe and efficient banking sector. However, Fed Governor Michael Barr dissented, arguing that the principle of equal treatment among banks is crucial to prevent regulatory arbitrage.

Barr's dissent comes amid accusations of his ties to Operation Chokepoint 2.0, aimed at debanking crypto companies, although he has previously advocated for responsible stablecoin regulation.