Fed Abandons Special Oversight for Crypto Banks—What Now?

The Federal Reserve just yanked the leash off crypto banking—no more special scrutiny, no more tailored rules. Is this a green light for innovation or a free pass for reckless players?

Behind the curtain: The Fed's move scraps a 2020-era framework designed to monitor crypto-focused banks. Critics argue it’s a surrender to industry pressure; proponents call it long-overdue deregulation.

Market déjà vu: Remember when regulators pretended stablecoins were 'low risk'? Yeah, that aged like milk. Now, with oversight gutted, crypto banks can play fast and loose—until the next blowup, of course.

Bottom line: The Fed’s retreat might juice short-term growth, but don’t be shocked when the 'unexpected' collapse triggers yet another bailout debate. Wall Street’s playbook, meet blockchain.

Why the FED Changed Its Stance

The now-scrapped “Novel Activities Supervision Program” began in 2023. It aimed to monitor new and risky bank ventures, especially those involving crypto and fintech. This included stablecoin issuance, tokenization of assets, and partnerships with nonbanks using tech like APIs. The FED argued that innovation could improve access to financial services but also warned about rapid systemic shifts and legal gaps. Over the past year, regulators say they strengthened their understanding of these activities. They now believe regular supervision is enough to manage the risks. This is not a free pass for banks—crypto activity will still be monitored. But it will no longer face a separate rulebook.

FED Shift Boosts Crypto Banking Confidence

For crypto banking, the end of this program removes a major barrier. Under the old rules, banks with strong crypto ties faced heavier oversight. Every project—from blockchain-based payment systems to distributed ledger experiments—was flagged for extra review. That added costs, slowed innovation, and discouraged some partnerships. Now, the playing field is more even. Banks can engage with crypto firms without the immediate fear of being singled out. While the FED insists it will still watch for risks, industry insiders see the change as a sign of regulatory normalization.

Banking Industry Adapts to New Oversight Model

With the special program gone, banks will follow the same oversight process for crypto as for other services. This means stablecoin custody, tokenized dollar pilots, and blockchain projects will be judged by the same standards as traditional banking products. The shift may open doors for more collaboration between banks and crypto firms. API-driven partnerships, where fintech companies handle the user interface while banks manage the backend, could see a surge. However, regulators will still watch for threats to financial stability. The FED’s update makes it clear—innovation is welcome, but recklessness isn’t.

What This Means for the Future of Crypto Banking

The FED’s decision does not mean a full embrace of crypto. It’s more of a reset. The central bank is moving away from treating digital assets as a special risk category. Instead, it’s blending them into the broader financial system. This could help crypto banking grow faster, as banks no longer face a separate oversight wall. But it also means the industry must prove it can operate safely under the same rules as everyone else. In short, the eyes of the FED are still on crypto—they just aren’t wearing a special badge anymore.