The Federal Reserve Board has crypto dollar tokens and banks. The board has rescinded the formal guidance that it previously issued on these activities and has also made changes to its expectations of banking institutions in the region within which these activities are emerging. This indicates a change in the central bank’s system-wide supervision approaches to digital assets within the banking ecosystem.
Alignment and Support for Innovation
As published by the Federal Reserve Board, the reason behind the withdrawal of this guidance has two objectives. First, the focus of the withdrawal seems to be aimed at aligning the board’s supervisory approach with what it has termed ‘evolving risks’ concerning crypto-asset activities. Regulatory bodies are adjusting their approaches as the digital assets ecosystem advances and understanding of its nuances deepens. As noted previously, the second explanation provided by the Federal Reserve Board is “in order to further support innovation in the banking system.” It is evident that if guidance is too prescriptive, it limits the scope to examine, design, and integrate new technologies associated with crypto and dollar tokens into the banking system.
Cancelling Prior Issued Supervisory Letters
Alongside this change in policy, the Federal Reserve Board has specifically cancelled two supervisory letters that were issued earlier and that supervised banks on their crypto undertakings. One key document withdrawn is a 2022 supervisory letter. This letter had set an expectation that state member banks would notify the Federal Reserve proactively of any planned or current crypto-asset operations. By rescinding this letter, the requirement to notify in advance is removed. Rather than this reporting mechanism, the Board has stated that it will now passively supervise state member banks’ crypto-asset operations as part of the routine supervisory oversight that is conducted on them. This suggests that oversight will change from needing to be informed beforehand to being incorporated within routine examinations and monitoring.
The second particular document that will be rescinded relates to a letter dated 2023. This earlier letter had described a supervisory nonobjection process tailored for state member banks wishing to undertake activities involving dollar tokens. In withdrawing this 2023 letter, the formal process that mandated banks to seek a “nonobjection” from their supervisors prior to engaging in activities related to dollar tokens is being eliminated. This indicates some form of streamlining or removal of a specific obstacle for banks seeking to engage with digital U.S. dollar representations.
Other Agencies Collaboration
The Federal Reserve Board’s withdrawal of guidance is being done simultaneously with other major U.S. financial regulators. The Board is withdrawing its participation in two joint statements from 2023 regarding banks’ activities and exposures in crypto-assets. The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) are also partaking in these withdrawals. The collective withdrawal from these 2023 statements shows some primary federal banking regulators have come together to level their policies and supervisory practices concerning the use of any digital assets within the U.S. banking sector. This collaborative withdrawal indicates a shift towards an agency-wide revision on supervision and reporting requirements of crypto-assets for traditional banks.
