A Level Playing Field for All Banks
On January 27, the Federal Reserve Board made waves with the announcement of a new policy aimed at regulating the activities of banks across the board. The objective? To create a level playing field among state banks—both those with and without deposit insurance—and national banks that are under the jurisdiction of the Office of the Comptroller of the Currency (OCC).
Understanding the New Restrictions
The newly minted policy doesn’t just introduce rules; it throws the proverbial wet blanket on activities outside national bank regulations for state banks. For example, state banks may now find it difficult to dabble in the sometimes murky waters of crypto-assets unless local laws extend the green light. As the Fed notes explicitly:
“The Board generally believes that issuing tokens on open, public, and/or decentralized networks is highly likely to be inconsistent with safe and sound banking practices.”
The Crypto Conundrum
When it comes to crypto-assets, the Fed has drawn a firm line (think of it as a digital bouncer at a club). They stated there’s no federal statute that allows national banks to hold most crypto-assets. As a result, state and national banks must rethink their crypto aspirations. Recent proposals from state banks to issue stablecoins—dubbed ‘dollar tokens’—will now face tighter scrutiny akin to that imposed on their national counterparts.
Impact on State Banks
This new policy could feel to some state banks like being sent back to the kiddie table at the Thanksgiving feast. In essence, they’ll find their activities limited unless they’re specifically authorized by their respective state laws. As if to underline this local angle, the Fed’s announcement came concurrently with the rejection of Wyoming’s Custodia Bank application for Federal Reserve membership.
The Future of Banking and Crypto
With the rolling out of this new directive, it’s worth pondering what’s next for banks dabbling in digital currencies. The Fed has already expressed heightened scrutiny, since banks must now disclose their plans for engaging in crypto, focusing heavily on risk management. With pressure from regulators increasing, traditional banks might just stick to the tried and true wheelhouse of traditional banking, leaving crypto enthusiasts to fend for themselves on the blockchain.
+ There are no comments
Add yours