Overview


In a significant policy shift, the Federal Reserve has confirmed that U.S. banks are now permitted to engage with cryptocurrency firms, provided they adhere to stringent financial and consumer protection standards. This development follows the Fed’s removal of “reputational risk” as a supervisory factor, effectively eliminating a long-standing barrier to traditional banking access for digital asset companies.


The announcement was made during Federal Reserve Chair Jerome Powell’s testimony before the House Financial Services Committee on June 24, 2025, and represents a major step toward integrating crypto into the mainstream financial system.


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Key Policy Change: Reputational Risk Removed


On June 23, the Federal Reserve formally revised its bank supervision manual, removing “reputational risk” as a determining factor in evaluating financial institutions' relationships with crypto clients. This aligns the Fed’s policy with recent adjustments by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC)—all of which now emphasize objective financial criteria over subjective reputational concerns.


This shift ensures that banks will no longer be penalized for engaging in lawful crypto-related activities due to vague or arbitrary reputational concerns.



Regulatory Alignment and Industry Confidence


The Fed’s move signals a more coordinated regulatory framework across key federal agencies. Banks can now base decisions to offer crypto services on clearly defined risk assessments—such as credit, liquidity, legal, and operational considerations—without fear of examiner disapproval based solely on perceived reputational risks.


To support this shift, Federal Reserve examiners will undergo updated training and collaborate with other agencies to ensure consistent regulatory oversight. This new clarity is expected to strengthen institutional confidence and encourage broader financial sector participation in digital asset markets.



Implications for the Banking Sector


With regulatory ambiguity reduced, banks are now poised to expand offerings in several areas of the digital asset space, including:



  • Cryptocurrency custody


  • Blockchain-based payments and settlements


  • Tokenized asset management


Financial institutions had long criticized reputational risk as a vague and overly restrictive standard that hampered innovation. Its removal opens the door for compliant, well-regulated crypto engagement—provided that banks maintain robust internal controls and risk management frameworks.



Fed Emphasizes Continued Risk Oversight


Despite the new policy flexibility, the Fed made clear that all banks engaging with crypto clients must still comply with existing regulatory standards. These include maintaining sound practices for credit risk, liquidity management, and consumer protection. No specific timeline has been provided for further guidance, but officials stressed that regulatory oversight will remain rigorous.


In a broader context, the Fed also addressed macroeconomic conditions during Powell’s testimony. Inflation continues to exceed the 2% target, and while interest rate cuts remain a possibility later in the year, officials highlighted ongoing uncertainty—especially with potential policy shifts, such as tariffs, on the horizon.



Conclusion


The Federal Reserve’s removal of reputational risk marks a pivotal moment in the U.S. banking sector’s relationship with cryptocurrency markets. By establishing clearer rules and aligning with fellow regulators, the Fed is fostering an environment where financial institutions can pursue lawful crypto opportunities without regulatory ambiguity.


While the central bank remains cautious, this measured support for crypto-related banking activities reflects growing recognition of digital assets' role in the financial future—provided that banks maintain high standards of risk management and consumer protection.