Federal Reserve Clears Banks to Expand Crypto Services

The Federal Reserve has given U.S. banks the green light to expand their services to include cryptocurrency firms, provided they adhere to strict financial and consumer protection standards. This significant policy shift was announced during the Fed Chair’s testimony to the House Financial Services Committee on June 24. The central bank also removed a major regulatory barrier that had previously hindered crypto access to traditional banking services.

On June 23, the Fed eliminated the concept of “reputational risk” from its bank supervision manual. This change means that banks will no longer face subjective judgments when dealing with crypto clients. Instead, regulators will focus on objective financial risks, aligning the Fed’s policy with those of the FDIC and the OCC, which made similar changes earlier this year. This policy shift supports a coordinated regulatory stance among key U.S. banking agencies, allowing banks to decide whether to engage with crypto clients based on clear risk factors. It also prevents examiners from blocking legal crypto activities under vague reputational concerns.

Under the new guidance, Fed examiners will receive updated training to ensure a consistent application of the rules across all supervised banks. They will also work closely with other agencies to maintain a uniform oversight system. These changes are expected to boost confidence among institutions considering crypto-related services, opening new possibilities for financial institutions to support digital asset markets. Banks are now expected to expand into services such as crypto custody, payments, and settlement, building products without fear of regulatory pushback over reputation-based concerns.

Industry players had long criticized reputational risk as a vague and restrictive standard. The recent update removes that obstacle and enables lawful innovation in the sector. While the Fed remains cautious, it supports responsible crypto activities if banks maintain strong controls. The Fed emphasized that banks must still meet strict standards on legal, credit, and liquidity risks. Regulators have not released a timeline for further guidance but continue to stress the need for careful management of all financial exposures.

Alongside crypto policy, the Fed also addressed broader economic factors. Inflation remains above the 2% target. The Fed has not ruled out rate cuts later in the year. However, officials admit that market conditions remain uncertain, especially due to policy shifts such as tariffs. The Fed’s stance confirms that banks can build crypto partnerships, but they must uphold consumer protection and financial stability.