Fed Reverses 2023 Rule, Opening Crypto Access for State Banks
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The US Federal Reserve Board announced yesterday, December 17, that it is withdrawing the 2023 policy statement, and is instead issuing a new policy statement regarding the treatment of certain Board-supervised banks that facilitates responsible innovation.
Why Is 2023 Policy Statement No Longer Applicable
The 2023 policy statement has effectively barred many state-chartered banks from the crypto sector. However, under the new, crypto-friendly leadership, there is a major regulatory change happening. The major regulatory pivot centers on the interpretation of Section 9(13) of the Federal Reserve Act, which formerly imposed a strong presumption against allowing state member banks to join activities that were not explicitly permitted for national banks.
By removing this guidance, the central bank can now create a new path for insured and uninsured state member banks alike, allowing them to seek permission for “innovative activities.”
This has been taken by many as a signal that a broader shift toward integrating digital assets into the formal US banking system is happening.
Commenting on the new move, the Vice Chair for Supervision, Michelle W. Bowman, said that new technologies offer efficiencies to bank, and improved products and services to bank customers.
“By creating a pathway for responsible, innovative products and services, the Board is helping ensure that the banking sector remains safe and sound while also modern, efficient, and effective,” Bowman added.
The Fed Is Changing Its Policy After Gaining A Better Understanding of Innovative Products And Services
The Fed’s announcement said that the 2023 statement also included a discussion of how the policy would apply to certain innovative products and services. Since it was published, however, the financial system and the Board’s understanding of innovative products and services have evolved, and because of that, the 2023 policy statement is no longer appropriate.
It also did not help that the 2023 policy was implemented during a period of intense regulatory scrutiny, especially after some of the major crypto platforms had collapsed, and several crypto-friendly banks had failed. At the time, the Fed aimed to level the playing field by ensuring that all banks followed the same set of permissible activities as national banks supervised by the OCC, regardless of their insurance status.
This is why it was withdrawn, and now the central bank intends to replace it with a new, more appropriate version that would include a modern understanding of these concepts.
The new 2025 framework will make the Federal Reserve evaluate applications from uninsured banks on a case-by-case basis, rather than applying a blanket presumption of denial. The change is significant for institutions such as Custodia Bank, which has challenged the Fed’s authority to block its entry into the central banking system
