Fed Axes Crypto Oversight Program Following Trump’s ’Debanking’ Backlash—What’s Next for Digital Finance?

The Federal Reserve just pulled the plug on its controversial cryptocurrency oversight initiative—and the timing couldn’t be more ironic. After years of regulatory tug-of-war, Trump’s vocal opposition to 'debanking' crypto firms forced the Fed’s hand. Was it a win for financial freedom or a free pass for unchecked speculation? Let’s break it down.

### The Backstory: A Program Built on Suspicion

Launched as a 'guardrail' for the crypto wild west, the Fed’s oversight scheme required banks to flag every digital asset transaction over $10K. Critics called it surveillance overreach; crypto advocates screamed hypocrisy—after all, traditional banks move trillions with far less scrutiny.

### Why Trump’s Outcry Mattered

When the former president labeled the program 'anti-innovation,' his base—and a few Wall Street renegades—turned up the heat. Behind closed doors, whispers grew that the Fed was stifling the next PayPal (or worse, missing out on its cut). Cue the sudden policy reversal.

### The Fallout: Chaos or Clarity?

Without Fed oversight, crypto firms can breathe easier—but banks now face a compliance gray zone. Some analysts predict a short-term surge in crypto investments; others warn of a 'regulatory vacuum' that’ll make the 2022 crash look tame. Meanwhile, the SEC is quietly drafting its own rules—because nothing says 'efficient markets' like three agencies doing the same job badly.

### The Bottom Line

This isn’t just about crypto. It’s a power shift—from centralized control to decentralized chaos, with your portfolio caught in the middle. Will deregulation spark innovation or invite another 'hold my beer' moment from finance? Place your bets… preferably in BTC.

Fed Says Specialized Crypto Banking Oversight No Longer Needed

In a statement released Friday, the central bank confirmed it WOULD “sunset” the program and return to “monitoring banks’ novel activities through the normal supervisory process.”

@federalreserve announces it will sunset its novel activities supervision program and return to monitoring banks’ novel activities through the normal supervisory process: https://t.co/GRhepriDhY

The central bank said the program, launched in August 2023 under Supervisory Letter SR 23-7, achieved its goal of strengthening its understanding of the risks tied to digital assets and related bank risk-management practices, making the specialized oversight framework unnecessary.

The initiative was designed as a risk-focused tool to supervise activities such as crypto-asset custody, crypto-collateralized lending, distributed ledger technology (DLT) projects, and traditional banking services provided to crypto companies and fintechs.

It also imposed heightened scrutiny on stablecoin issuance and transactions, requiring pre-approval and proof of robust risk controls.

At the time, Fed officials argued that the framework would help resolve “unique questions around permissibility” and mitigate vulnerabilities, including money laundering, customer runs, and cybersecurity breaches.

The program brought together digital-asset specialists and conventional bank examiners to merge technical and regulatory expertise.

However, crypto-friendly lawmakers criticized the effort as part of “Operation Chokepoint 2.0,” an alleged campaign to cut off banking access for politically disfavored industries, including digital asset firms.

Senator Cynthia Lummis (R-WY), a vocal blockchain advocate, celebrated the Fed’s reversal on X (formerly Twitter), stating that “Big win for putting an end to Operation Chokepoint 2.0. The Fed announced it’s killing the targeted supervision of digital asset banking activities. There’s still more to do, but this is real progress toward a level playing field for crypto.”

Big win for putting an end to Operation Chokepoint 2.0.

The Fed announced it’s killing the targeted supervision of digital asset banking activities. There’s still more to do, but this is real progress toward a level playing field for crypto. https://t.co/1eQA4xlg0f

The policy shift comes against a heated political backdrop. President Donald Trump has repeatedly condemned what he calls “debanking” by federal regulators and has vowed to dismantle programs he sees as hostile to cryptocurrency and innovation.

Although the Fed did not reference political pressure in its decision, Friday’s statement suggested the lessons learned from the program would now be integrated into standard oversight.

The withdrawal of SR 23-7 removes the extra supervisory LAYER that applied to banks involved in complex fintech partnerships, stablecoin operations, and concentrated crypto service provision.

Going forward, such activities will be assessed under the same risk-based framework used for other bank operations.

Still, the Fed stressed that expectations for safety, soundness, and compliance remain in place, meaning banks will continue to face strict requirements for risk management and regulatory approvals before engaging with digital assets.

U.S. Regulators Drop ‘Reputational Risk’ Rule, Easing Bank-Crypto Ties

Under the Biden administration, U.S. federal banking agencies imposed tight restrictions on how banks could work with crypto businesses. That approach has shifted dramatically since President Donald Trump, a vocal supporter of digital assets, took office earlier this year.

In March, TRUMP signed a long-anticipated executive order establishing a friendlier federal framework for digital asset oversight. The move was followed by the Federal Deposit Insurance Corporation (FDIC) removing “reputational risk” as a supervisory factor, a policy long criticized by crypto advocates as a vague excuse to block banking relationships.

The FDIC also issued guidance clearing the way for supervised banks to engage in crypto-related activities without prior approval, provided they meet existing safety and compliance standards.

The US Federal Reserve, FDIC and OCC discussed how existing laws, regulations and risk-management protocols apply to crypto ‘safekeeping.’#FederalReserve #CryptoCustody #FDIChttps://t.co/OoMS9PNHBF

In July, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency (OCC) issued a joint statement reminding banks offering crypto custody to maintain strong risk management.

The agencies stressed that banks can provide custody in fiduciary or non-fiduciary capacities, but must safeguard cryptographic keys, comply with federal and state laws, and implement protections against cyber threats and mismanagement.

The US Federal Reserve removes “reputational risk” from bank oversight, addressing crypto industry concerns about banking access.#Crypto #Bankinghttps://t.co/4xwpC0KqZR

The regulatory shift continued on June 24, when the Fed formally removed “reputational risk” from its oversight framework, promising more transparent and consistent supervision.

Rob Nichols, president of the American Bankers Association, called it “a long-overdue step” toward letting banks make business decisions based on market conditions rather than regulatory opinion.

Congress has also moved toward clarity. On July 18, President Donald Trump signed the landmark GENIUS Act, marking the entry of the United States into a new era of federally regulated stablecoins.

As GENIUS Act passes, regulatory paths stabilize across jurisdictions and digital assets may find stronger footing for long-term planning.#genius #stablecoinhttps://t.co/Hdq2wceITt

Meanwhile, Trump signed another executive order urging regulators to remove barriers that prevent 401(k) retirement plans from offering alternative assets such as cryptocurrencies.

If enacted, the measure could put digital assets directly into mainstream retirement savings, a landmark shift for U.S. investors.