Fed Eases Crypto Banking Curbs, Spurs Industry Access to Payment Systems

The Federal Reserve has taken a significant step toward integrating cryptocurrencies into the U.S. banking system by withdrawing its 2023 policy that had restricted state-chartered banks, especially those without FDIC insurance, from engaging in digital asset activities. The new guidance, announced on Wednesday, December 17, 2025, allows both insured and uninsured banks to apply for permission to conduct "innovative activities" that include crypto custody, tokenization, and stablecoin services. This shift marks a regulatory pivot from a rigid, risk-averse stance to a more flexible framework that acknowledges the evolving nature of financial technology.

Under the updated rules, uninsured banks—such as Wyoming's Special Purpose Depository Institutions—can now seek Fed approval on a case-by-case basis to engage in crypto-related services, provided they meet risk-management and safety standards. The 2023 policy had effectively barred these institutions from Fed membership and access to payment rails if their activities weren't explicitly allowed for national banks. The new approach recognizes that different technologies and business models pose different risks and require tailored regulatory oversight.

The move follows years of tension between U.S. crypto banks and federal regulators, who had previously issued warnings about the risks of digital assets in the banking system. The 2023 policy had been widely interpreted as limiting the ability of crypto-focused institutions to operate within the Fed's framework, particularly by blocking access to master accounts and key payment infrastructure. The withdrawal of this guidance is expected to enable greater participation in digital asset services, particularly for institutions that rely on direct access to the Fed's systems according to analysis.

A Shift in Regulatory Philosophy

The new policy reflects a broader evolution in the Fed's regulatory philosophy, moving from a "same activity, same risk" framework to a more nuanced approach that evaluates activities based on their specific risks. Vice Chair for Supervision Michelle Bowman emphasized that new technologies offer efficiencies and improved services to customers, but only if they are implemented responsibly under clear supervisory expectations according to her statement. This shift is being viewed as a critical step toward ensuring U.S. banks remain competitive in a rapidly evolving financial landscape.

The 2023 policy had been particularly controversial among crypto-focused institutions, which argued it stifled innovation and limited access to critical financial infrastructure. Custodia Bank, for example, had sued the Fed over its denial of a master account, citing the 2023 guidance as the basis for the decision.

The bank's CEO, Caitlin Long, praised the reversal, calling it a long-overdue correction according to her comments. The updated policy now allows such institutions to apply for Fed membership and access to payment systems on a more equitable basis.

Dissenting Voices and Systemic Risks

Despite the approval from crypto advocates, the policy change did not go unchallenged. Governor Michael Barr, the former Vice Chair for Supervision, dissented from the decision, warning that the new framework could encourage "regulatory arbitrage" and weaken the stability of the broader financial system according to his analysis. He argued that the previous policy ensured a level playing field by applying the same rules to all institutions, regardless of their insurance status. The revised guidance, he said, risks allowing banks to seek out the most lenient regulatory environments, potentially undermining financial stability.

The Fed's leadership acknowledged these concerns but emphasized that the financial system has evolved in ways that make the 2023 policy outdated. The Board's statement noted that the central bank's understanding of digital assets and their risks has also matured, enabling a more sophisticated and risk-based approach according to the Fed's official statement. This evolving perspective has been reinforced by recent developments in the crypto sector, including the growing maturity of digital assets and the increasing demand for institutional-grade custody and settlement solutions.

Implications for the Crypto Industry

The revised policy is expected to have a significant impact on the crypto industry, particularly for firms seeking direct access to the Fed's payment systems. Companies like Circle, Tether, and BitGo, which provide custodial and stablecoin services, will now be able to hold customer reserves directly at the Fed rather than routing them through commercial banks. This reduces counterparty risk and operational costs while improving transparency and control over fund flows according to industry analysis.

The change also aligns with broader regulatory efforts to integrate digital assets into the traditional financial system. Earlier this year, the Office of the Comptroller of the Currency (OCC) approved trust charters for several crypto companies, and the FDIC proposed a framework for issuing payment stablecoins. These steps suggest a coordinated effort by U.S. banking regulators to create a clear and stable legal environment for digital finance, which could help attract capital and talent that might otherwise move to offshore jurisdictions according to regulatory reports.