Federal Reserve relaxes crypto partnership rules for banks

The US Federal Reserve confirmed that it rescinded earlier directives concerning banks’ involvement with crypto and dollar tokens, according to an April 24 statement.

One significant change involves the 2022 supervisory letter, which required banks to notify regulators before engaging in any crypto activities.

Going forward, banks will no longer need to provide advance notification. Instead, their crypto-related operations will now be monitored through the standard supervisory process.

The Fed also rescinded its 2023 directive mandating a supervisory non-objection process for state member banks involved with dollar tokens. This directive had previously demanded that banks demonstrate sufficient infrastructure to manage associated risks before pursuing crypto ventures.

Additionally, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) pulled back two 2023 policy statements warning banks about crypto-related risks, including potential liquidity problems caused by market volatility.

According to officials, these withdrawals open the door for future discussions about new, more balanced guidance that promotes innovation without exposing the financial system to significant risks.

Crypto-banking relationship

The Feds’ decision suggests a potential revival of ties between the banking and crypto sectors.

In recent years, many crypto firms faced widespread debanking, which limited their access to traditional financial services.

However, with Donald Trump’s pro-crypto administration now in play, there are signs that the relationship is being repaired, which could further bolster the growth of the emerging industry.

David Wells, CEO of Enclave Markets, pointed out that crypto is still the only major asset class against which banks cannot lend. This hurdle has made it hard for large asset managers to invest heavily in digital assets.

Wells believes that if banks start treating crypto as liquid collateral, it could release significant capital into the crypto markets. This move could dramatically boost liquidity and help the sector grow to the scale of traditional markets like bonds, commodities, and equities.

Farzam Ehsani, the CEO of crypto firm VALR, added:

“Crypto related activities becoming more and more accepted by ‘the system.’ Expect every jurisdiction in the world – without exception – to head in this direction (as many already have).”

The post Federal Reserve relaxes crypto partnership rules for banks appeared first on CryptoSlate.