FDIC Removes Reputational Risk, Paves Path for Crypto Banking

The Federal Deposit Insurance Corporation (FDIC) has taken a significant step toward reshaping the regulatory landscape for banks engaging in cryptocurrency-related activities. On March 28, 2025, the FDIC issued Financial Institution Letter 7-2025 (FIL-7-2025), rescinding previous requirements that mandated FDIC-supervised institutions to seek prior approval before offering crypto services. This guidance, which replaces the more restrictive FIL-16-2022, explicitly permits banks to participate in permissible crypto activities-such as custody services, stablecoin management, and blockchain network participation-provided they manage associated risksFDIC Clarifies Process for Banks to Engage in Crypto^[1]. Acting FDIC Chairman Travis Hill, a vocal advocate for crypto-friendly policies, emphasized that the move marks a "new approach" to aligning banking with innovation while upholding safety and soundness standardsFDIC Clarifies Process for Banks to Engage in Crypto^[1].

The shift follows years of industry criticism over alleged regulatory overreach, particularly the practice of "debanking" crypto firms. Documents released via a Freedom of Information Act request revealed that the FDIC had previously directed banks to "pause all crypto asset-related activity" in 2022, a move critics labeled as "Operation Chokepoint 2.0"FDIC to review rule that may shape banks’ crypto relationships^[2]. These actions, which reportedly discouraged banks from servicing crypto clients due to perceived reputational and operational risks, became a focal point for industry advocates and lawmakers. The FDIC's latest guidance explicitly removes "reputational risk" as a supervisory consideration, a policy change aligned with the FIRM Act championed by Senator Tim ScottChokepoint 2.0: An Investigation Promises the Truth^[5]. This decision has been hailed as a "big win for crypto" by industry leaders, who argue it curtails subjective regulatory pressures that stifled innovationChokepoint 2.0: An Investigation Promises the Truth^[5].

The FDIC's actions are part of a broader regulatory realignment under the Trump administration. President Donald Trump's executive order on "free banking" in August 2024 condemned "politicized or unlawful debanking," a stance echoed by Hill's appointment as FDIC chair in October 2025. The administration has also prioritized stablecoin regulation, with Trump advocating for the U.S. to become the "Bitcoin superpower"Chokepoint 2.0: An Investigation Promises the Truth^[5]. These developments have spurred optimism in the crypto sector, with analysts noting that clearer rules could foster deeper collaboration between banks and web3 firms. For example, banks now better positioned to offer custody solutions may integrate with blockchain infrastructure providers, enhancing trust and mainstream adoptionFDIC Drops ‘Reputational Risk’ in Bank Rules, Crypto Advocate Calls It a Win^[4].

However, the FDIC's guidance does not eliminate all hurdles. Banks must still navigate complex anti-money laundering (AML), cybersecurity, and compliance frameworksFDIC Clarifies Process for Banks to Engage in Crypto^[1]. Additionally, the FDIC plans to collaborate with other federal agencies to replace interagency statements on crypto risks, signaling ongoing regulatory evolutionFDIC Clarifies Process for Banks to Engage in Crypto^[1]. While the industry welcomes the shift, challenges persist. For instance, some banks remain cautious due to lingering concerns about market volatility and operational complexity.

The policy changes have also reignited debates over regulatory accountability. Testimonies during congressional hearings highlighted the need for transparency in banking decisions, with witnesses urging mandatory written justifications for account closures. Meanwhile, the FDIC's removal of reputational risk from its criteria has drawn comparisons to similar moves by the Office of the Comptroller of the Currency (OCC), further signaling a coordinated effort to reduce subjective regulatory barriersChokepoint 2.0: An Investigation Promises the Truth^[5].

As the FDIC works to finalize its approach, the crypto sector faces a pivotal juncture. The removal of prior approval requirements and the repudiation of reputational risk as a supervisory tool could catalyze broader institutional participation in digital assets. However, the success of these reforms will depend on how effectively banks and regulators balance innovation with risk management. With the FDIC and other agencies continuing to refine their frameworks, the path forward remains dynamic, but the recent policy shifts underscore a clear intent to integrate crypto into the traditional financial ecosystemFDIC Clarifies Process for Banks to Engage in Crypto^[1].