tl;dr
Federal Reserve Chair Jerome Powell confirmed that U.S. banks can provide services to cryptocurrency firms if they adhere to risk management and consumer protection standards. The Fed removed "reputational risk" from its supervision criteria, aligning with other regulators to eliminate barriers prev...
Federal Reserve Chair Jerome Powell has confirmed that U.S. banks are permitted to provide services to cryptocurrency firms, provided they comply with established risk management and consumer protection standards. This marks a significant regulatory shift designed to foster responsible innovation within the digital asset space.
The Federal Reserve Board recently removed "reputational risk" from its bank supervision criteria, a subjective standard that previously acted as a barrier to banks engaging with crypto activities. This change aligns the Fed with other federal regulators such as the FDIC and the OCC, promoting uniform oversight and facilitating banks to offer services including Bitcoin trading and custody.
To ensure consistent application of this new framework, examiners will undergo retraining, and the Fed will collaborate with peer agencies. Powell emphasized that while regulators had adopted a cautious approach following the turmoil in the crypto markets in 2022, the environment now supports “responsible innovation” as long as banks uphold stringent risk controls.
Industry stakeholders have lauded these developments as a critical milestone in integrating digital assets into mainstream financial systems. Banks are now expected to broaden their offerings to include crypto custody, payments, settlement services, and basic banking operations related to digital currencies.
In addition to this regulatory update, Powell indicated that the Federal Reserve may consider interest rate cuts later in the year despite ongoing inflation concerns, a stance that has introduced some uncertainty to market expectations. Meanwhile, regulators remain committed to maintaining robust legal, liquidity, and credit risk standards as banking institutions increase their crypto-related activities.