For nearly three years, the Federal Reserve’s inner circle excluded crypto-friendly banks, allowing traditional institutions to operate freely despite constant regulatory obstacles. On Wednesday, the Federal Reserve rescinded its controversial 2023 guidance, thereby opening up new opportunities.
The Federal Reserve withdrew its outdated policy that blocked Fed-supervised banks from engaging with cryptocurrencies and digital assets, marking a sharp turn in how US regulators handle the sector. The central bank simultaneously rolled out new guidance establishing a formal pathway for both insured and uninsured state member banks to pursue innovative activities like crypto services, provided they meet risk-management standards.
Old Rules Built Barriers
The 2023 guidance forced uninsured banks to follow identical rules as federally insured institutions, working on the idea that similar activities carried similar risks regardless of bank type. This effectively stopped uninsured banks from offering crypto services that national banks couldn’t provide, automatically kicking them out of Fed membership since their core business activities weren’t allowed.
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The Fed acknowledged on Wednesday that financial markets have transformed since 2023 and its grasp of innovative products has grown considerably. “As a result, the 2023 policy statement is no longer appropriate and has been withdrawn,” the central bank stated.
Caitlin Long, CEO of Wyoming-based Custodia Bank, celebrated the reversal hard. She claims the 2023 guidance directly caused the Fed’s rejection of her institution’s master account application—access that would let Custodia hold balances straight with the central bank and tap into core payment systems without intermediaries.
“The Fed broke the law by citing this very guidance in the Custodia denial, even though the guidance hadn’t become official yet,” Long wrote on X. She added that most of the team responsible has since left or lost power at the Fed.
Not Everyone Agrees
Fed Governor Michael Barr cast the lone dissenting vote, arguing that equal treatment among banks maintains competitive fairness and blocks regulatory arbitrage. “I cannot agree to rescind the current policy statement and adopt a new one that would, in effect, encourage regulatory arbitrage, undermine a level playing field, and promote incentives misaligned with maintaining financial stability,” Barr stated.
Critics have linked Barr to Operation Chokepoint 2.0, an alleged federal campaign to cut crypto companies off from banking services, though he previously advised Ripple and backs responsible stablecoin regulation.
Fed Vice Chair for Supervision Michelle Bowman defended the policy shift, saying it helps ensure “the banking sector remains safe and sound while also modern, efficient, and effective.”
The reversal fits into broader regulatory changes under President Trump’s administration. This year alone, the Fed killed two crypto-restrictive supervisory letters and shut down its Novel Activities Supervision Program, moving digital asset oversight back into standard supervisory processes.
Industry leaders welcomed the change but stressed execution matters most. “Not all crypto products fit neatly into traditional banking rails,” said Jakob Kronbichler, CEO of Clearpool. “DeFi protocols, tokenized assets, and on-chain settlement don’t always map cleanly onto legacy risk models.”
