Fed Pulls the Plug: US Central Bank Axes Crypto Banking Pilot Program

The Federal Reserve just slammed the brakes on its experimental crypto banking initiative—leaving lenders in uncharted territory.

No more training wheels for banks dabbling in digital assets. The Fed's abrupt termination of its Novel Activities Supervision Program throws cold water on Wall Street's blockchain ambitions. Regulators clearly aren't convinced banks can handle crypto's volatility without adult supervision.

Banks now face a stark choice: abandon crypto services or navigate regulatory purgatory alone. Meanwhile, crypto natives smirk—another case of legacy finance moving at government speed while DeFi eats their lunch.

One thing's certain: when the Fed says 'novel,' they apparently mean 'not for long.' Typical bureaucratic whiplash—first they encourage innovation, then they pull the rug. Some things never change in central banking.

• The Federal Reserve has ended its oversight of banks’ cryptocurrency and fintech services.
• Banks will now adhere to standard supervisory processes, ending the Novel Activities Program.
• The Fed ended the program after strengthening its understanding of crypto-related risks.

The Federal Reserve Board has announced the end of its “novel activities supervision program.” On August 5, the board announced that the program, which started in 2023 to monitor banks’ involvement in cryptocurrency and fintech services, had been discontinued. 

The Fed said, “Since the Board started its program to supervise certain crypto and fintech activities in banks, the Board has strengthened its understanding of those activities, related risks, and bank risk management practices.” 

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

Crypto Activities of Banks to Follow Regular Oversight

Notably, the Novel Activities Supervision Program was introduced during the 2023 banking crisis, when few banks engaging in crypto activities failed. Although the Federal Reserve has ended the program monitoring crypto operations, it is still determined to maintain oversight of the risks associated with crypto-banking services.

The Fed’s ruling concludes two years of intense effort to focus on the novel risks involved with the expanding cryptocurrency market. It also follows the Federal Reserve’s action to withdraw similar supervisory letters that had imposed constraints on how American banks were engaging in crypto services.

The supervision aimed to ensure banks managed risks tied to offering cryptocurrency and financial technology services. The Federal Reserve said that it had gained a better understanding of the risks that crypto-related activities pose and how banks address these risks. 

Consequently, the Fed will now supervise such activities within its regular supervisory program, rather than an exclusive crypto supervisory scheme.

The central bank also noted that this shift does not weaken its regulation of crypto activities but rather incorporates the knowledge it has acquired in the last two years into its overall regulatory strategy.

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SEC and U.S. Regulators Ease Crypto Restrictions

In addition, the TRUMP administration’s approach to regulating digital assets in the United States has been crypto-friendly. 

This includes the US Securities and Exchange Commission (SEC), which recently dropped several crypto-related investigations. The U.S. regulators in the banking industry, including the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), have also eased restrictions governing how banks operate in the crypto market. 

The Fed noted that it WOULD continue to regulate banks that provide crypto-related services, such as crypto custody, stablecoin management, and tokenization. Still, it will now be part of the normal supervision process.

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