Federal Reserve Withdraws 2023 Crypto Restrictions: Here’s All You Need to Know

The Federal Reserve just reversed course—and crypto markets are already reacting.

Breaking the Chains

In a move that caught many by surprise, the Fed has formally withdrawn its 2023 restrictions on banking involvement with digital assets. The guidance, which had effectively chilled relationships between traditional banks and crypto firms, is now officially off the books. No lengthy phase-out, no conditional pilot—just a clean reversal.

The Ripple Effect

Expect immediate fallout. Institutional capital, once sidelined, now has a clearer path back in. Compliance teams at major banks are likely scrambling to update their playbooks overnight. The regulatory fog that's hung over crypto banking for two years is finally lifting—or at least, thinning out.

What Changed?

The original 2023 restrictions weren't a formal rule but a powerful piece of supervisory guidance. They urged extreme caution, framing crypto activities as laden with 'safety and soundness' risks. Banks interpreted it as a near-prohibition, leading to account closures and frozen partnerships. The withdrawal signals a starkly different risk assessment from the central bank.

Not a Free Pass

Don't mistake this for a laissez-faire approach. The Fed emphasized that banks must still manage risks—liquidity, fraud, AML—the usual suspects. The difference? They're now being told to engage with those risks, not avoid them entirely. It's a shift from 'just say no' to 'proceed with caution.'

Market Mechanics in Motion

Watch the treasury management products first. Crypto-native companies have been operating with one hand tied behind their backs, piecing together banking services from a patchwork of smaller institutions. The door is now open for larger players to offer consolidated, institutional-grade services—for a hefty fee, of course. Some things in finance never change.

The Bigger Picture

This isn't happening in a vacuum. It follows sustained pressure from Congress and industry, arguing the restrictions stifled innovation and pushed activity offshore. The Fed's pullback aligns with a broader, if uneven, trend toward regulatory clarity. Other agencies are still writing their rules, but the biggest barrier—the banking chokepoint—just got a lot wider.

A cynical take? The Fed isn't embracing crypto out of newfound love. It's realizing that trying to wall off the banking system from a $2 trillion asset class was a losing battle—and that bringing it into the light is the only way to actually control it. Sometimes, pragmatism beats ideology. Even for central bankers.

TLDR

• The Federal Reserve withdraws 2023 crypto restrictions, allowing banks to explore innovative activities.

• The new policy creates a clearer path for banks to engage with digital assets like crypto custody.

• Both insured and uninsured state member banks can now apply to engage in crypto services.

• The shift reflects a more innovation-friendly approach to digital assets and blockchain.

The Federal Reserve has officially withdrawn its restrictive 2023 policy that limited certain banks from engaging in innovative crypto-related activities. This marks a shift toward a more flexible and open approach to digital asset integration in the U.S. banking sector. On December 17, 2025, the Fed Board released a statement acknowledging the evolving understanding of innovative products and services in the financial system.

The 2023 policy previously imposed strong restrictions, particularly against state member banks engaging in novel crypto services that weren’t explicitly allowed for national banks. This had effectively barred smaller, state-chartered banks from entering the crypto space, especially in areas like crypto custody and stablecoin issuance.

Federal Reserve New Policy Expands Bank Engagement with Digital Assets

The updated policy now allows both insured and uninsured state member banks to apply for permission to engage in activities not traditionally permissible under the previous framework. Insured banks remain subject to limits under the Federal Deposit Insurance Act, but uninsured state banks have the opportunity to seek approval for activities that were previously restricted.

This change paves the way for banks to start engaging more actively with the digital asset sector, including services such as cryptocurrency custody, tokenization, blockchain settlement tools, and stablecoin integration. The Federal Reserve emphasized that banks engaging in these activities must demonstrate proper risk management practices and adhere to regulatory expectations.

In practice, this policy change offers banks the opportunity to innovate in the digital space while still maintaining the safety and soundness of the financial system. The shift in the Fed’s approach signifies a departure from a restrictive stance to one that encourages responsible experimentation with new technologies.

Custodia Bank and Crypto-Focused Institutions Benefit from Policy Change

One of the notable institutions affected by the 2023 policy was Custodia Bank, a Wyoming-chartered special purpose depository institution. Custodia, which focuses on providing compliant banking services for digital assets, was previously blocked from accessing a Federal Reserve Master Account due to the 2023 restrictions.

Now, with the Federal Reserve’s new guidance, Custodia Bank and other similar crypto-focused institutions could have the opportunity to apply for permission to engage in activities previously off-limits.

The new policy gives these banks a clearer path to integrate digital assets and blockchain technologies into their services. The Fed’s revised stance signals a willingness to allow crypto-focused institutions to operate within a regulated environment that balances innovation with risk management.

A Step Toward a More Innovation-Friendly Crypto Framework

The Federal Reserve’s withdrawal of the 2023 policy comes amid growing support for the digital asset sector from various U.S. regulators, including the Commodity Futures Trading Commission (CFTC) and the Office of the Comptroller of the Currency (OCC). These regulatory bodies have been gradually advancing frameworks that enable the integration of blockchain and crypto services into mainstream finance.

The Fed’s decision to ease restrictions also aligns with broader efforts to provide clarity and foster responsible innovation in the U.S. financial system.

By allowing banks to apply for permission to engage in novel crypto activities, the Federal Reserve has created a more structured path for banks to participate in the growing digital asset market while ensuring they meet rigorous supervisory standards.