Federal Reserve Eases Crypto Rules for Banks, Enhancing Market Access

The U.S. Federal Reserve has reversed its 2023 guidance, which limited bank activities in crypto, reflecting a reassessment of regulation in light of financial innovation.

Previous policy required uninsured state-chartered banks to follow the same rules as federally insured ones, restricting access to core payment systems and Federal Reserve membership.

Policy Shift for Banks

New guidance allows both insured and uninsured banks supervised by the Federal Reserve to engage in innovative activities, including those related to cryptocurrencies.
Banks must still meet supervisory and risk-management standards but won't be automatically excluded based on business models.
Uninsured banks could gain direct settlement through central bank systems, reducing reliance on intermediaries.
This could lower operational frictions for crypto services, potentially expanding banks' roles in digital asset markets without altering safety expectations.

Custodia Case and Regulatory Tensions

The reversal affects Custodia Bank, whose Federal Reserve master account application was denied under the old guidance.
CEO Caitlin Long welcomed the policy withdrawal as correcting regulatory overreach.
Federal Reserve Governor Michael Barr dissented, citing concerns about competitive balance and regulatory arbitrage.

Broader Implications for Crypto Markets

The Fed's move doesn't directly change trading of [Bitcoin](https://holder.io/coins/btc/) or [Ethereum](https://holder.io/coins/eth/) but may influence market structure over time.
Easier bank access could lead to increased institutional participation, greater liquidity, and expanded custody and settlement options.

The shift indicates a more flexible regulatory stance, acknowledging rapid changes in digital asset markets and banking services.