The Fed has withdrawn its 2023 guidance that limited banks’ access to digital assets.
On December 17, the U.S. Federal Reserve officially withdrew the 2023 guidance that had restricted the operations of Fed-supervised banks in the digital asset sector.
The now-withdrawn 2023 guidance required uninsured banks to follow the same rules applied to federally insured institutions. In practice, this prevented uninsured banks from offering cryptocurrency-related services—activities not permitted for traditional national banks—and effectively excluded them from participating in the Federal Reserve system, as their core operations were deemed ineligible.
Outdated guidance and evolving financial landscape
The Fed said a key reason for withdrawing the guidance was that it was outdated and “the financial system and the Board’s understanding of innovative products and services have evolved.” “As a result, the 2023 policy statement is no longer appropriate and has been withdrawn,” it said.
Caitlin Long, CEO of crypto-focused Custodia Bank, welcomed the decision enthusiastically in a post on X. Long explained that the 2023 guidance had been the reason her bank’s master account application was denied. A Fed master account allows a financial institution to hold balances directly at the central bank and access its primary payment systems, enabling settlement of transactions in central bank money without relying on another bank as an intermediary.
“The Fed broke the law by citing this very guidance in the Custodia denial, even tho the guidance hadn’t become official yet, that didn’t happen until Feb 2023,” Long said. “But most of that team is now gone or out of power at the Fed. Nature is healing. Thank you VCS Bowman & Gov Waller!” she added.
New guidance for innovation
The decision coincided with the issuance of new guidance establishing a formal pathway for Fed-supervised state member banks, insured and uninsured, to pursue “innovative activities” such as digital assets, provided risk management expectations are met.
Fed vice chair for Supervision Michelle Bowman said that 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.”
Not all Board members supported the move. Governor Michael Barr dissented, arguing that the principle of equal treatment among banks helps maintain competitive balance and prevents regulatory arbitrage.
“This principle continues to hold true today. Therefore, I cannot agree to rescind the current policy statement and adopt a new one that would, in effect, encourage regulatory arbitrage, undermine a level playing field, and promote incentives misaligned with maintaining financial stability. I dissent,” he said.
Barr has faced accusations of ties to Operation Chokepoint 2.0, a federal effort to exclude crypto companies from the banking system. He has also previously served as a consultant to Ripple and advocated for responsible stablecoin regulation.
