The withdrawn guidance required uninsured banks to follow the same limitations as federally insured institutions.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Fed Explains Why The 2023 Crypto Guidance Was Withdrawn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 She stated that the now-withdrawn guidance was cited when the Fed denied Custodia’s application for a master account.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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The Bank of Korea has officially paused the second phase of its central bank digital currency (CBDC) tests. Initiated in April, these tests were meant to evaluate the use of a digital won in real-world payments. However, recent government support for stablecoins appears to have shifted the momentum.

High Costs and No Clear Plan Push Banks Away

Sources from the seven participating banks say the CBDC project was already “on the verge of collapse.” The main reason? High costs and lack of a clear commercialization roadmap. Though over 100,000 users joined the initial trial, banks argue there’s little incentive to continue without policy clarity.

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Meanwhile, the government, under newly elected President Lee Jae-myung, is actively promoting stablecoins. A new bill tabled this month allows companies to issue Korean won-pegged stablecoins with a minimum capital of 500 million won (about $370,000). That legislation is quickly reshaping the country’s crypto landscape.

Won-Pegged Stablecoin Initiative Gains Traction

Eight major South Korean banks are now forming an alliance to launch a won-backed stablecoin by 2025. This group includes several CBDC trial participants: KB Kookmin, Shinhan, Woori, and NongHyup.

The move signals a significant shift in strategy. Banks appear more interested in building independent crypto products that offer tangible revenue streams rather than supporting costly central bank projects.

Following the announcement, local fintech stocks reacted swiftly. KakaoPay fell 7%, Hecto Financial dropped 5%, while KB Financial Group and Shinhan saw slight gains of 0.8% and 1.6%, respectively.

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