Regulatory easing again! The Federal Reserve will stop strengthening the review program for banks and cryptocurrencies

The Federal Reserve announced on Friday that it will stop the regulatory program aimed at strengthening oversight of banks' involvement in cryptocurrency activities, which was launched during the Biden administration. Media reports indicate that this move continues the recent trend of U.S. regulators embracing the cryptocurrency industry.

In a statement on Friday, the Federal Reserve said:

"Since the initiation of the regulatory program for certain cryptocurrency and fintech activities in banks, the Committee has enhanced its understanding of these activities, associated risks, and banks' risk management practices. Therefore, the Committee will reintegrate this knowledge and oversight of related activities into the regular regulatory process and rescind the regulatory letter that established the program in 2023."

The Abolished Regulation Emerged Amid Regional Bank Crisis

The canceled program, named the "Novel Activities Supervision Program," was originally designed to strengthen oversight of regulated banks' activities related to digital assets and blockchain technology.

This program was established during the tenure of Federal Reserve Vice Chairman Michael Barr, who was appointed by then-President Biden, at a time coinciding with the regional bank crisis in 2023. The program aimed to increase the Federal Reserve's regulatory scrutiny of banks' involvement in cryptocurrency and fintech activities and assess their potential risks to the banking system. Earlier this year, the banking association had called for the program's abolition.

The program focused on: cryptocurrency asset custody, loans collateralized by cryptocurrencies, assistance in digital asset transactions, issuance of stablecoins and dollar tokens, as well as projects utilizing distributed ledger technology (such as blockchain) that "may have a significant impact on the financial system," including the tokenization of securities and other assets.

The program also covered complex technological collaborations between banks and non-bank institutions, such as API-based service delivery; at the same time, it implemented close supervision of banks providing deposit, payment, and loan services to cryptocurrency-related businesses.

At that time, the Federal Reserve believed that "financial innovation could bring rapid changes and create new forms of risk that are not yet covered by the existing regulatory framework." The design principles of the program were based on risk, integration with the existing regulatory system, and ensuring that "banking institutions are not prohibited or discouraged from providing legally permissible banking services based on the specific group or type of customer."

Improved Digital Asset Policy Environment Since Trump's Second Term

Media reports indicate that since President Trump began his second term, the Federal Reserve has generally aligned its cryptocurrency policies with other banking regulators, gradually retracting its previous hardline stance on digital assets. The political environment in the U.S. has become increasingly friendly towards digital assets, with the Trump administration consistently promoting the idea of making the U.S. the "global cryptocurrency capital."

In April of this year, the Federal Reserve rescinded an earlier regulatory guideline that required banks to obtain approval from government regulators before engaging in any cryptocurrency business. Meanwhile, two other federal banking regulatory agencies in the U.S.—the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC)—also simultaneously abolished corresponding regulatory provisions, allowing banks to independently decide whether to engage in cryptocurrency business under the existing risk management frameworkThe latest actions of the Federal Reserve come as U.S. regulators released new guidelines in July outlining how banks can provide custody services for crypto assets. The Federal Reserve also announced in June that it would no longer consider "reputation risk" as part of bank reviews, a move that some critics pointed out had previously forced certain banks to cease doing business with digital asset companies.

This news did not boost cryptocurrencies. Bitcoin is currently down about 0.8%, hovering around $117,000. Ethereum is down 3.5%, around $4,400.