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Guidance Rescinded: The Federal Reserve has withdrawn a restrictive 2023 policy that previously created a "strong presumption" against banks engaging in "novel" crypto activities.
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Flexible 2025 Policy: Under the updated framework, uninsured state member banks can now apply to engage in activities (such as issuing stablecoins or holding crypto on balance sheets) on a case-by-case basis.
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Custodia Victory: The 2023 rule was famously used to deny Custodia Bank a Fed Master Account; the withdrawal potentially opens a new path for the digital-asset-focused bank.
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Regulatory Shift: The move reflects an "evolving view on risks" and follows broader trends in the U.S. toward more innovation-friendly digital asset regulation.
Lowering Barriers for Crypto-Native Banks
In a significant policy reversal, the Federal Reserve Board has withdrawn its 2023 statement that severely limited the ability of state member banks to participate in the digital asset sector. The original policy was established following the collapse of FTX to prevent banks from engaging in activities not already clearly permitted for national banks. The new 2025 Policy Statement replaces this with a more flexible approach, acknowledging that the financial system’s understanding of innovative services has matured.
Case-by-Case Permission for Uninsured Banks
While insured banks remain subject to strict FDIC limits, the Fed's updated guidance creates a pathway for uninsured state member banks to seek permission for novel activities. This includes previously restricted practices like issuing stablecoins or holding Bitcoin and Ether on bank balance sheets. The Fed noted that while the same activity should generally be subject to the same regulatory framework, "different activities, presenting different risks," deserve more tailored oversight rather than a blanket prohibition.
Impact on the "Custodia Connection"
The withdrawal of the 2023 guidance is particularly noteworthy for Custodia Bank, the Wyoming-chartered institution founded by Caitlin Long. The Fed had previously used the rescinded policy to underpin its rejection of Custodia’s application for a Fed Master Account. As an uninsured bank that maintains 100% reserves, Custodia is now positioned to seek approval for the very "novel" activities it was designed to provide, marking a potential turning point in its long-running legal and regulatory battle.
