Mainstream Adoption of Cryptocurrencies Foreseen by Federal Chair, Anticipates Increased Bank Involvement
In a significant move, the Federal Reserve has announced a change in its stance towards the crypto industry, withdrawing related advisories and removing reputational risk from bank examination programs. This shift is part of a broader regulatory effort aimed at promoting crypto innovation while maintaining prudent risk management.
Previously, banks were hesitant to engage with crypto businesses due to the inclusion of "reputational risk" as a subjective criterion in bank examinations. This fear of regulatory backlash based on perceived association risks has now been addressed, with the Fed officially removing reputational risk from its supervisory framework on June 23, 2025. This move signals a shift towards a more objective, risk-based approach focused on measurable financial factors like liquidity, creditworthiness, and compliance.
This regulatory change aligns the Federal Reserve’s stance with similar moves by the FDIC and OCC, creating a more unified and clear regulatory environment for banks interested in crypto. This harmonization helps reduce ambiguity and regulatory uncertainty that previously deterred institutional participation in digital assets.
The regulatory change takes place in the context of a broader, pro-crypto and pro-innovation political environment in the U.S., notably under the Trump administration's 2025 agenda. Legislative actions like the GENIUS Act for stablecoins and repealing outdated crypto policies reflect a national push to clarify regulations and foster the growth of crypto markets and technology.
Analysts and Fed economists have warned about new channels of risk exposure for banks, including fraud and financial crimes. However, the current enforcement focus is shifting towards targeting higher-risk areas with clear priority guidance. This calibrated approach encourages economic growth and innovation while still managing risks effectively.
Regarding section 9(13), it can be inferred that it relates to regulatory or supervisory guidelines that previously incorporated reputational considerations. The withdrawal of advisories linked to such sections reflects the Fed’s intent to remove vague regulatory hurdles that limited institutional engagement with crypto.
Representative Steil has sought clarity on the change in the Federal Reserve's stance on reputational risks, while Chair Powell has expressed pleasure with progress on a legal framework for stablecoins. Senator Lummis has emphasised that the recently passed Genius Act allows banks to use distributed ledgers as books and records. Chair Powell expects banks to increase engagement with the crypto industry, believing the crypto industry is maturing and becoming more mainstream.
The Trump administration's embrace of digital assets has prompted banking regulators to adopt a more accommodating stance toward the crypto sector. Senator Lummis has questioned what factors caused the Federal Reserve to change its stance on crypto, to which Chair Powell responded by citing periods of turbulence and fraud in the crypto sector. The Federal Reserve identified debanking as a serious problem in 2024 and decided to address it.
In April, the Federal Reserve withdrew four crypto-related advisories. Chair Powell expects to see more activity in the crypto sector over time, with a significant change in the tone regarding crypto reflecting the evolving status of the industry. This shift towards a more objective, risk-based approach is expected to bridge the gap between crypto’s decentralized model and mainstream financial stability and innovation goals.
- The move by the Federal Reserve to remove reputational risk from bank examination programs signifies a shift towards a more objective approach that focuses on measurable factors like liquidity, creditworthiness, and compliance in engaging with the crypto industry.
- The regulatory change in the stance of the Federal Reserve towards the crypto industry creates a more clear and unified regulatory environment, reducing ambiguity and regulatory uncertainty that previously deterred institutional participation in digital assets.
- The removal of reputational risk from bank examinations can be inferred to relate to regulatory or supervisory guidelines that previously incorporated such considerations, thereby removing vague regulatory hurdles that limited institutional engagement with crypto.
- The harmonization of regulatory stances by the Federal Reserve, FDIC, and OCC reflects a national push to clarify regulations and foster the growth of crypto markets and technology, aligning with the pro-crypto and pro-innovation political environment under the Trump administration's 2025 agenda.
- The recent change in the Federal Reserve's stance on reputational risks has been prompted by the maturing and mainstreaming of the crypto industry, as well as the identified problem of debanking in 2024, with Chair Powell expecting banks to increase engagement with the crypto sector over time.
