Fed Chair Gives Green Light to Banks for Serving Crypto Customers
In a groundbreaking announcement, Jerome Powell, the Chairman of the US Federal Reserve, declared that banks are now permitted to cater to cryptocurrency customers, provided they effectively handle the associated risks.
This revelation comes in the wake of the Federal Reserve's decision to maintain its key interest rate at 4.25% to 4.5% following a trio of rate reductions towards the end of 2024.
During a recent press briefing, Powell responded to inquiries regarding the potential impact of speculation within the cryptocurrency domain on financial stability and its place in household investment portfolios. He underscored the Fed's role in overseeing the banking sector.
"Banks have the capability to serve crypto clientele as long as they comprehend and can manage the risks in a secure manner," Powell affirmed.
A noteworthy development is the recent repeal of the Staff Accounting Bulletin (SAB) 121 by the Securities and Exchange Commission (SEC). Previously, this regulation discouraged banks from providing custody services for digital assets.
With SAB 121 now superseded by SAB 122, banks stand to gain increased flexibility in offering crypto custody services. This alteration may spur wider adoption and further integration of cryptocurrencies into conventional financial frameworks.
Powell highlighted that many banks subject to Federal Reserve supervision are already involved in crypto-related undertakings. However, he conceded that the regulatory barriers for banks to enter this realm remain substantial.
He cautioned that banks must exercise prudence when delving into novel asset classes like cryptocurrencies, especially when operating within the federal safety net that includes deposit insurance safeguards.
"We embrace innovation and are keen to refrain from measures that could prompt banks to sever ties with legally compliant customers due to excessive risk aversion," Powell underscored.
The crypto community has responded favorably to Powell's pronouncements, interpreting them as a positive signal of the increasing mainstream acceptance of cryptocurrencies within traditional financial landscapes.
Bitwise CEO Hunter Horsley expressed optimism, foreseeing banks as a significant driver for the crypto sphere in 2025, marking the advent of a new mainstream era.
"In my opinion: This implies the #FDIC will insure customer crypto held by banks," crypto analyst Marty Party linked the surge in Bitcoin's price to Powell's recent announcement.
Amid the sector's upbeat response, there remains skepticism within the banking industry. Fox Business correspondent Eleanor Terrett conveyed reservations from a source at a major bank, questioning the feasibility of Powell's assertions.
Even though there is desire within the banking realm to collaborate with crypto clients, regulatory impediments have created formidable challenges hindering banks from active engagement with this burgeoning sector.