The US Federal Reserve said on April 24 that it has lifted requirements that banks provide advance notice before getting involved in cryptocurrency businesses. This is a full about-face from the cautious policy regulators had taken previously with digital assets.
Banks can now engage in crypto and stablecoin businesses without needing special authorization, although they will still be subject to regular supervision.
Trump Admin Makes Good On Crypto Campaign Promise
The policy shift realizes US President Donald Trump’s campaign vow to make the United States crypto-friendly. This completes the process of rolling back restrictions on banks looking to participate in lawful activities in the blockchain space, reports banking industry observers.
The Federal Reserve was the third of the big bank regulators to pull its crypto guidance letter, following the same actions by the Federal Deposit Insurance Corporation (FDIC) late last month and the Office of the Comptroller of the Currency (OCC) earlier that month.
Image: iStock photo
Previous Restrictions Created Barriers For Banks
Under the 2023 guidance which has since been withdrawn, banks regulated by the Fed were instructed to notify its lead supervisory point of contact at the Federal Reserve before engaging in any crypto-asset-related activity.
The limits were imposed after a series of crises struck the digital currency sector in 2022, prompting regulators to issue warnings about possible dangers. A lawsuit between the FDIC and cryptocurrency exchange Coinbase implied that banks under supervision very infrequently, if at all, ever gained approval to venture into crypto businesses when they made such requests.
Total crypto market cap at $2.92 trillion on the daily chart: TradingView.com
Fed Shifts To Standard Supervision Approach
Instead of needing special pre-advance notice, bitcoin operations will be screened through the Fed’s regular bank oversight process. The Federal Reserve also withdrew its 2023 policy that restricted bank participation with stablecoins, which are commonly referred to as “dollar tokens.”
The Fed also withdrew from two joint statements issued with other agencies that had highlighted potential threats of fraud, misinformation, and unstable money flows associated with cryptocurrency firms.
Banking And Crypto Sectors Likely To Gain
The decision is set to ease compliance requirements and present fresh opportunities for banks in the crypto asset business. The Board will coordinate with the agencies on whether additional guidance to facilitate innovation, including digital asset business, is needed, the Fed said in announcing the move.
This comes on the heels of a January decision by the Securities and Exchange Commission to undo a rule that had compelled banks holding crypto to categorize it as a liability.
The Fed has indicated that it will continue to keep an eye on risks related to digital assets, but through routine oversight instead of special limitations.
Featured image from Manhattan Institute, chart from TradingView
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