Federal Reserve Drops 2023 Restrictions on Uninsured Banks’ Crypto Activities
The Fed reverses 2023 guidance, creating a formal pathway for insured and uninsured banks to pursue crypto-related activities under supervisory standards, amid dissent from Governor Michael Barr and renewed focus on Custodia Bank.
The U.S. Federal Reserve reversed its 2023 guidance that sharply limited crypto engagement by banks under its supervision. The new policy establishes a formal pathway for both insured and uninsured banks to undertake innovative activities, including crypto, if they meet supervisory and risk-management standards, ending automatic exclusions based on business models. For uninsured banks, potential Fed membership and direct access to central bank payment systems could reduce reliance on intermediaries and lower frictions for crypto custody and settlement. The shift highlights Custodia Bank, whose master account bid was denied under the prior framework; CEO Caitlin Long welcomed the change. Fed Governor Michael Barr dissented, warning of risks to competitive neutrality and possible regulatory arbitrage; the move may gradually affect market structure and institutional participation.
- Federal Reserve master account: An account granting a bank direct access to Federal Reserve payment systems for clearing and settlement without intermediaries.
- Uninsured banks: State-chartered institutions not covered by federal deposit insurance that may still be supervised by the Federal Reserve.
- Regulatory arbitrage: Leveraging differences or gaps in regulatory regimes to gain a competitive advantage.