Yeliz Akmaca 
The US Federal Reserve has officially withdrawn its 2023 guidance that restricted how banks interact with crypto assets. The decision marks a structural shift in how Fed-supervised institutions approach digital assets. For banks operating in the crypto space, long-closed doors are now reopening.
The withdrawn guidance required uninsured banks to follow the same limitations as federally insured institutions. As a result, many crypto-friendly banks were effectively barred from Fed membership and access to core payment systems. The Fed now acknowledges that both the financial system and regulatory understanding have materially evolved since that framework was introduced.
Fed Explains Why The 2023 Crypto Guidance Was Withdrawn
In its statement, the Federal Reserve said the 2023 guidance no longer reflected current risks or product structures. The central bank emphasized that innovation across financial services has accelerated. Regulatory tools designed two years ago are no longer sufficient to address today’s market dynamics.
Crucially, the Fed signaled a shift away from blanket activity bans. Instead of prohibiting certain crypto-related services outright, the updated approach focuses on how risks are managed. This change is especially significant for state-chartered banks that were previously excluded from crypto services by default.
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Custodia Bank Case Highlights Regulatory Friction
Custodia Bank CEO Caitlin Long publicly welcomed the decision. She stated that the now-withdrawn guidance was cited when the Fed denied Custodia’s application for a master account. Such accounts allow banks to settle payments directly in central bank money, rather than through intermediaries.
Long argued that the Fed relied on the guidance even before it was formally finalized. According to her, leadership changes inside the central bank have weakened the anti-crypto stance that previously dominated supervisory decisions. Her remarks underscore growing internal divergence within US financial regulators.
@federalreserve withdraws 2023 policy statement and issues new policy statement regarding the treatment of certain Board-supervised banks that facilitates responsible innovation: https://t.co/5s1I9LO9EF
— Federal Reserve (@federalreserve) December 17, 2025
New Fed Framework Creates Pathway For Bank Innovation
Alongside withdrawing the old policy, the Federal Reserve introduced a new framework. Under this model, both insured and uninsured state member banks can pursue innovative activities, including crypto-related services, if they meet defined risk-management standards. The emphasis shifts from what banks do to how they do it.
Fed Vice Chair for Supervision Michelle Bowman said the goal is to keep the banking sector safe while ensuring it remains modern and competitive. However, the decision was not unanimous. Fed Governor Michael Barr dissented, warning that easing restrictions could encourage regulatory arbitrage and disrupt equal treatment among banks.
Market And Investor Behavior Implications
The policy reversal sends a clear signal that regulatory hostility toward crypto is easing in the US banking system. Banks can now explore custody, payment, and settlement services without automatic exclusion. This shift may also reduce perceived regulatory risk for institutional investors.
From a behavioral perspective, the softer regulatory tone could gradually improve risk appetite. Interest in stablecoins, tokenized deposits, and crypto payment rails is likely to recover. Over the medium term, this decision strengthens confidence in the integration of traditional finance and digital assets.
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