US Banks No Longer Required to Inform Crypto Activities: Fed Reverses Draconian Regulations

In a significant policy change, the US Federal Reserve on Thursday formally withdrew two of its supervisory letters in 2022 and 2023 that had earlier discouraged US banks from participating in cryptocurrency and stablecoin activities.

"These actions keep the Board's expectations in line with changing risks and further promote innovation in the banking system," the Fed said in announcing.

Banks May Now Enter Crypto Without Advance Warning

Historically, the state member banks had to alert the Fed before engaging in any form of crypto activity under the previously withdrawn 2022 letter.

A supervised banking organization should inform its primary supervisory point of contact at the Federal Reserve before conducting any activity involving crypto-assets," the letter had said.

That regulation has now been abolished. In the future, banks are free to carry out crypto and stablecoin business without advance permission, and the Fed will monitor such activities under the regular supervisory process instead.

The 2023 supervisory letter, which required banks to seek a no-objection from the Fed prior to participating in 'dollar token' (stablecoin) activities, was also withdrawn.

"A state member bank wishing to participate in such dollar token activities… must inform its lead point of contact for supervision," the 2023 rule stated. That requirement has now been done away with.

A Shift Toward a More Crypto-Friendly Regime

The withdrawal of these regulatory guidelines follows a wider shift under Donald Trump's administration, which has been outwardly pro-crypto.

Trump campaigned on his qualifications as the "first Bitcoin President", vowing to streamline crypto regulation. He has since formed a national working group to examine crypto rules and even set in motion the creation of a national Bitcoin reserve.

Simultaneously, the Securities and Exchange Commission (SEC) has also downgraded its enforcement of crypto businesses, particularly since the departure of former Chair Gary Gensler. Some landmark lawsuits against crypto firms have been abandoned, highlighting a more conciliatory approach to regulation.

This deregulatory move is expected to encourage increased adoption of crypto at traditional banks as well as ensure the United States' position as a competitive arena for digital assets innovation.

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