Federal Reserve removes massive hurdle for crypto bankers

Federal Reserve removes massive hurdle for crypto bankers originally appeared on TheStreet.

The Federal Reserve Board on Friday announced it will sunset its “novel activities” supervision program and return to monitoring banks’ crypto-asset and fintech activities through the normal supervisory process.

In its Aug. 15, , the Board said the move reflects “a strengthened understanding of those activities, related risks, and bank risk management practices.” With that, it is rescinding its 2023 supervisory letter that created the program.

The letter read:

"The Board is integrating that knowledge and the supervision of those activities back into the standard supervisory process and is rescinding its 2023 supervisory letter creating the program."

On Aug. 8, 2023,  the board established the Novel Activities Supervision Program “to enhance the supervision of novel activities conducted by banking organizations supervised by the Federal Reserve.”

The focus was on crypto-asset custody, crypto-collateralized lending, facilitating digital asset trading, stablecoin and dollar token issuance, and projects using distributed ledger technology “with the potential for significant impact on the financial system,” including tokenization of securities and other assets.

It also targeted complex, technology-driven partnerships with non-banks, such as API-based service delivery, and close monitoring of banks providing deposits, payments, and lending to crypto-related entities.

At the time, the Fed argued that “financial innovation… can lead to rapid change… and generate novel manifestations of risks” that existing oversight might not address. The program was designed to be risk-based, integrated with existing supervisory portfolios, and to ensure that “banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.”

The immediate change aligns with moves by other regulators, such as the FDIC and the Office of the Comptroller of the Currency, which have relaxed procedural barriers to banks’ involvement in crypto, focusing instead on risk management and compliance.

The shift also comes under a political backdrop that has grown markedly friendlier to digital assets. President Donald Trump’s administration has pushed to make the U.S. the “crypto capital of the world.”

On August 14, Treasury Secretary Scott Besson announced plans to purchase more Bitcoin and establish a formal U.S. Bitcoin reserve — a move that, alongside Friday’s Fed action, underscores Washington’s pivot toward embracing crypto in the banking sector.