The fortress of regulations collapses: US regulators agree to allow banks to engage in cryptocurrency business

In a move considered a milestone for the digital finance industry, the U.S. Federal Reserve has officially removed a long-standing restriction regulation. The agency has rescinded guidance that previously prevented banks—especially those without FDIC deposit insurance—from providing services related to digital assets. This move opens a historic possibility: traditional banking institutions can now officially enter the crypto space.

What is the removed barrier?

What was the restrictive guidance that the Fed used to deny operating rights to banks wanting to explore cryptocurrency business? It was a management tool primarily applied to banks operating outside the FDIC framework. This regulation created a real wall, preventing them from offering crypto services.

A typical example is Custodia Bank—a financial institution specifically designed to serve the digital asset sector. When Custodia applied for a main account approval at the Federal Reserve, the Fed used this very restrictive guidance as the reason for denial. What does a main account mean? It’s a direct access point to the national payment systems, an essential tool any bank needs to operate normally. This denial highlights a deep contradiction between innovative fintech models and current legal frameworks.

Why did the Fed suddenly change course?

The policy shift didn’t happen out of nowhere. Recently, Vice Chair for Supervision Michelle Bowman publicly stated that the Fed needs to approach the future with an open mindset. The agency recognizes that foundational technologies supporting cryptocurrency businesses have the potential to improve banking efficiency and enhance customer service.

Behind this decision are three main drivers:

Planned Safe Innovation: The Fed doesn’t want to completely block progress but aims to build a clear, supervised pathway for banks to explore the digital asset space.

Global Competition: The U.S. banking system faces pressure from other economies. If restrictions continue, American banks risk falling behind international competitors who have embraced crypto.

Better Risk Control: By bringing crypto activities into a regulated banking framework, regulators can monitor and mitigate systemic risks more effectively than if they operate outside the boundaries.

What will change in the market?

This decision is not just administrative—it’s a strong signal that cryptocurrency business is no longer viewed as a fringe activity but as a potential component of the mainstream financial system.

For traditional banks, this new door opens opportunities such as:

• Offering digital asset custody services to clients
• Supporting crypto payments and transfers
• Developing hybrid products combining traditional finance and digital technology

For crypto-focused companies like Custodia Bank, this openness could lead to reconsideration of previous rejection cases. However, the reality remains complex: banks must navigate a complicated web of federal and state regulations, while demonstrating they have robust risk management systems to handle the high volatility of digital assets.

Increased competition between traditional banks and fintech firms may drive product innovation and reduce costs for consumers over time, though immediate results are not guaranteed.

How do investors and users benefit?

In the long run, these changes could create safer, more familiar channels for buying, selling, and storing crypto through reputable banks. This will boost trust and widespread acceptance of digital assets.

However, it’s important to note that FDIC insurance still only covers traditional deposits. The withdrawal of the guidance only allows non-FDIC insured banks to participate in crypto business, without changing existing insurance rules.

Challenges ahead

The removal of the restrictive guidance does not mean complete freedom. Banks still need to:

• Comply fully with current banking laws
• Obtain necessary access approvals such as (main account)
• Demonstrate specific risk management capabilities for digital assets
• Meet capital and reserve requirements

Conclusion: From prohibition to cooperation

The Federal Reserve’s decision marks a shift from comprehensive prohibition to a supervised integrated framework. It’s a cautious step but reflects a positive mindset. It sets an important precedent: innovation in cryptocurrency business can have a legitimate place within regulated banking.

This consensus is essential to building an inclusive, efficient, and modern financial system that meets the needs of an increasingly digital economy.