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U.S. Fed Allows Greater Flexibility for Banks Engaging in Crypto Activities
The U.S. Federal Reserve has officially rolled back a restrictive policy that had limited how certain banks could engage with the crypto sector, signaling a notable shift in regulatory posture as the central bank reassesses risks tied to digital assets.
Fed Rescinds 2023 Restrictive Policy
On Wednesday, the Fed Board withdrew its 2023 Policy Statement, which had imposed a “strong presumption” against state member banks participating in “novel” activities not clearly permitted for national banks—a category that often included crypto-related services. In its place, the Fed introduced a more flexible 2025 Policy Statement, citing “evolving views on risks” and a deeper understanding of innovative financial products.
According to the Fed, the earlier policy restricted Board-supervised state member banks to activities allowed by other federal banking regulators. “Since the policy statement was published, the financial system and the Board’s understanding of innovative products and services have evolved,” the Fed said in its official release.
What the New Policy Allows
Under the updated framework, insured state member banks—those with FDIC deposit insurance—remain bound by strict limitations under Section 24 of the Federal Deposit Insurance Act. However, uninsured state member banks can now request Fed Board approval to pursue activities not allowed for insured banks, evaluated on a case-by-case basis.
The earlier guidance, while not an outright ban, effectively discouraged banks from holding assets like Bitcoin or ETH on balance sheets or issuing stablecoins, due to regulatory uncertainty.
Part of a Broader Regulatory Shift
This change comes amid a broader regulatory recalibration in the U.S., influenced in part by President Donald Trump’s vocal support for the digital asset sector. Although the Fed operates independently, it has eased several crypto-related measures introduced after the collapse of FTX.
Notably, the Fed shut down a 2023 crypto bank supervision program earlier this year and collaborated with the OCC and FDIC on guidance for safeguarding digital assets.
Implications for Custodia Bank
The policy update could be significant for Custodia Bank, a Wyoming-chartered, uninsured digital asset bank founded by Caitlin Long. The 2023 guidance had previously supported the Fed’s denial of Custodia’s Master Account application. With the new rules, Custodia may now seek approval for crypto-related activities that were once off-limits.
While some Fed officials, including Governor Michael S. Barr, previously argued for uniform treatment across banks to prevent regulatory arbitrage, the Fed’s latest move reflects a more nuanced approach to crypto regulation.
