According to latest reports, the Fed has removed “reputational risk” from its supervisory exams and has told banks not to fear serving crypto firms. Speaking at the Wyoming Blockchain Symposium, Vice Chair for Supervision Michelle Bowman said the Fed will fully embrace blockchain innovation rather than resist it and update its policies to give the crypto sector a clear path forward.
- Why This Matters Now
- A Four-Principle Framework for Digital Assets
- From “Novel” to Normal Supervision
- The Real-World Impact
- Conclusion
- FAQs
- What did the Fed take out of bank oversight?
- Why is this good for crypto firms?
- What are the Fed’s new principles for crypto?
- Will the Fed still supervise crypto?
- Glossary
Why This Matters Now
For years, banks citing vague reputational concerns shut crypto firms out, resulting in widespread debanking. The rationale effectively limited lawful access to financial services. Now the Fed’s removal of reputational risk opens the door to industry-bank collaboration under clear, objective standards.
At the symposium Bowman said:
“Your industry has already experienced significant frictions with bank regulators applying unclear standards, conflicting guidance, and inconsistent regulatory interpretations.”
She said banks should not face penalties for serving lawful crypto clients as decisions are fully with bank management.
A Four-Principle Framework for Digital Assets
Bowman outlined four principles guiding the Fed’s new regulatory approach:
First, is the regulatory certainty. The Fed is removing standards that discourage banks from working with crypto.
Second is tailored regulation; evaluating each use case on its merits rather than defaulting to worst-case assumptions.
Third is consumer protection; reaffirming rules against unfair or deceptive practices while applying anti-money laundering laws to crypto-linked products.
Fourth is American competitiveness. Bowman said failing to shape technology could allow it to bypass banks and erode the financial system’s relevance.
From “Novel” to Normal Supervision
The Fed will disband its stand-alone “novel activities” oversight program and integrate crypto and fintech oversight into standard bank supervision.
Bowman even suggested Reserve Bank examiners be allowed to hold “de minimis” amounts of crypto, so they can better understand the technology they regulate.
Bowman praised the passage of the GENIUS Act which creates a legal framework for stablecoins, setting them as part of future payment systems. She highlighted asset tokenization as a way to reduce settlement costs and speed up transfers with benefits for banks of all sizes, including community institutions.
She called for industry-regulator collaboration to develop tools to fight fraud and modernize oversight.
The Real-World Impact
By removing reputational risk, the Fed is saying crypto isn’t inherently bad. Under the new guidance, examiners will only look at clear financial risks like liquidity, legal and credit risks. This is in line with the OCC and FDIC walking back the reputational yardsticks that led to debanking.
Senator Cynthia Lummis called this a “turning point for digital assets.”
But critics warn that removing reputational risk doesn’t remove risk entirely, and banks must stay vigilant. Loosening oversight could lead to less discipline in the event of a sudden crisis like a run on a bank triggered by negative headlines.
Conclusion
Based on the latest research, the Fed has made up its mind, now encouraging banks to serve crypto if legal and well-managed. Removing reputational risk, integrating crypto oversight into standard supervision and smart regulatory principles means a more open system.
As Bowman said “We must choose whether to embrace the change and help shape a framework…”
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Summary
The Fed has officially opened up banking to crypto, removing “reputational risk” from its supervisory framework and telling banks to serve lawful digital-asset firms. At the Wyoming Blockchain Symposium, Vice Chair Michelle Bowman outlined a new four-principle regulatory approach: regulatory certainty, tailored oversight, consumer protection and U.S. competitiveness.
FAQs
What did the Fed take out of bank oversight?
The Fed removed “reputational risk” from its supervisory exams, focusing on concrete financial risks like credit and liquidity exposure.
Why is this good for crypto firms?
It removes a long-standing barrier as banks no longer face regulatory pushback for serving crypto clients, so crypto can access mainstream banking services.
What are the Fed’s new principles for crypto?
Regulatory certainty, tailored oversight, consumer protection and U.S. competitiveness.
Will the Fed still supervise crypto?
The standalone crypto supervision program is gone, crypto will be examined under the Fed’s regular supervisory framework.
Glossary
Reputational Risk – Regulators previously assessed whether banks could face public backlash for legal actions—like crypto services—and penalized them accordingly. The Fed has removed this from the formal oversight tools.
Regulatory Certainty – Clear rules and standards so firms can plan and innovate without fear of changing interpretations.
Tailored Regulation – Rather than broad rules; regulators will assess risks based on specific products, institutions and use cases.
GENIUS Act – New legislation that sets a framework for stablecoins; giving them a clear legal footing in the U.S. financial system.
Tokenization – The process of representing assets as digital tokens to enable efficient transfer and settlement in digital markets.
References
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