Fed Policy to Align Banking Supervision May Limit Crypto Activities of State Banks

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The Federal Reserve Board of the United States announced on January 27 that it was issuing a policy statement on restrictions on banks. The policy aims to create a level playing field and limit regulatory arbitrage for state banks with deposit insurance, state banks without deposit insurance, and national banks, which are overseen by the Office of the Comptroller currency (OCC), allowing them the same scope of authorized activities.

The new policy will limit the activities of state banks by not allowing them to engage in activities not authorized by state banks unless state law permits. In the Federal Register notice, the statement specifically discusses crypto in detail. He stated:

The Council has not identified any authority authorizing national banks to hold most crypto-assets […] As principal, regardless of the amount, and there is no federal law or rule expressly allowing state banks to hold cryptoassets as principal. Therefore, the Council would presumptively prohibit Member State banks from engaging in such activity under Article 9(13) of the [Federal Reserve] Law.

The notice also states that state banks have offered to issue dollar tokens, i.e. stablecoins, and that these banks will now be subject to OCC interpretative letters 1174 and 1179, as do national banks. He added :

The Council generally believes that the issuance of tokens on open, public and/or decentralized networks, or similar systems, is very likely to be inconsistent with safe and sound banking practices.

The statement was released the same day the Fed rejected Wyomings Custodia Bank’s application for membership in the Federal Reserve.

Related: OCC Makes Staff Available for Fintech-Related Discussions

The Fed increased scrutiny of banks engaged in crypto activities in August 2022, when it issued a letter requiring banks it oversees to disclose plans that include crypto, with a reminder to ensure proper management risks. The letter retrospectively applied to banks already active in crypto.

@federalreserve issues policy statement to promote level playing field for all banks with federal supervisors, regardless of deposit insurance status: https://t.co/ms40zhoYUY

Federal Reserve (@federalreserve) January 27, 2023

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