Federal Reserve Eases Restrictions, Paves Way for Crypto Activities in State-Chartered Banks

TLDR

• The Federal Reserve rescinded 2023 guidance that limited state member banks from engaging in certain crypto activities.
• The updated policy allows more flexibility for state-chartered banks to seek approval for novel activities beyond traditional limits.
• Insured state member banks remain subject to strict rules, while uninsured banks can apply for permission on a case-by-case basis.
• Custodia Bank, a Wyoming-chartered institution, can now seek approval for activities previously restricted under the 2023 policy.
• The Fed’s shift in policy reflects a broader trend toward accommodating emerging financial technologies, including crypto services.

The Federal Reserve has withdrawn guidance that limited state member banks from engaging in certain activities, including some crypto services. This change marks a shift in the Fed’s approach, reflecting evolving views on financial risks. The revised policy allows more flexibility for state-chartered banks to seek approval for activities beyond those traditionally permissible for national banks.

Federal Reserve Updated Policy on State Banks

In a statement issued on Wednesday, the Federal Reserve rescinded a restrictive policy that had been implemented in 2023. The previous policy imposed limits on state member banks, particularly concerning activities not allowed for national banks, such as many crypto services.

The updated approach offers a more flexible framework for state-chartered banks seeking to engage in new activities, including digital asset services. The Fed emphasized that, under the new 2025 Policy Statement, insured state member banks would still be subject to strict limits set by the Federal Deposit Insurance Act.

However, uninsured state member banks can now apply to the Fed for permission to engage in activities not permitted for insured banks on a case-by-case basis. The change reflects the Fed’s evolving understanding of financial products and services.

Impact on Custodia Bank and the Crypto Space

This policy change has notable implications for Custodia Bank, which had been denied access to a Fed Master Account under the previous guidance. Founded in 2020, Custodia is a Wyoming-chartered special-purpose depository institution that provides services specifically designed for digital assets.

As an uninsured bank holding 100% reserves, Custodia can now apply to engage in novel activities that were previously restricted under the 2023 policy. The Fed’s decision to amend its stance also reflects broader shifts in regulatory oversight of the crypto sector. The withdrawal of the 2023 guidance follows other moves by the Fed to adjust its approach to crypto-related activities.

These changes include the discontinuation of a 2023 crypto bank supervision program and the issuance of joint guidance with other agencies to safeguard digital assets. The Federal Reserve’s shift in policy represents a more adaptable framework, allowing for greater innovation while still managing risk. This change could open new opportunities for banks like Custodia, which provide services specifically for the crypto sector.

The post Federal Reserve Eases Restrictions, Paves Way for Crypto Activities in State-Chartered Banks appeared first on Blockonomi.