Major policy reversal! The Federal Reserve withdraws crypto restrictions for 2023, is the spring of crypto banks here?

December 17, 2025, the Federal Reserve officially announced the withdrawal of its restrictive policy statement issued in 2023, which had strictly limited its supervised state member banks from engaging in “new” activities such as crypto assets. In its place is a brand-new, more flexible 2025 policy statement, whose core principle is “Same activity, same risk, same regulation.” This move, regarded by the industry as a “milestone turning point,” opens the door for banks focused on crypto assets—including Custodia Bank—to apply for activities such as digital asset custody and stablecoins, marking a new phase in the US crypto financial regulatory environment.

From “Strong Presumption of Prohibition” to “Risk-Based Approval”: Why the Fed’s Policy Is Shifting

The Fed’s policy shift is not without precedent. The 2023 policy was enacted in the context of heightened regulatory vigilance following the collapse of the FTX exchange. It established a “strong presumption” against state member banks engaging in “new” activities not explicitly permitted for nationwide banks, effectively excluding crypto custody, holding Bitcoin or Ethereum assets, issuing stablecoins, and similar activities from the traditional banking system. Fed Governor Michelle Bowman explained that the emergence of new technologies offers efficiency and new products for banks and customers, and the new policy aims to “create a pathway for responsible innovation.”

The core driver behind this shift is an “evolution” in regulators’ understanding of digital asset risks and value. The Fed’s official statement acknowledges: “Since the issuance of this policy statement, the financial system and the Committee’s understanding of innovative products and services have evolved.” This change in language reflects a clearer support from US political leaders for the digital asset industry and indicates that the regulatory framework is seeking a new balance between “risk prevention” and “embracing innovation.”

The new regulatory philosophy can be summarized as “Same activity, same risk, same regulation.” This means that a business will not be automatically prohibited solely because it involves blockchain or cryptocurrencies but will be evaluated based on its actual risk profile and subjected to appropriate regulatory requirements. The focus of regulation shifts from “business type” to “risk management capability,” allowing banks that demonstrate sufficient liquidity, loss absorption capacity, and credible disposal plans to explore new activities.

Key Milestones in the Evolution of the Fed’s Crypto Regulatory Policy

2023 Policy:

• Core stance: Strong presumption against state member banks engaging in “new” activities not permitted for nationwide banks.
• Practical impact: Effectively prohibited core activities such as crypto asset holdings and stablecoin issuance.
• Milestone event: Became a key basis for denying Custodia Bank’s application for a Federal Reserve master account.

2025 New Policy:

• Core principle: “Same activity, same risk, same regulation.”
• Approval pathway: Provides a clear case-by-case application process for banks (especially uninsured state member banks) to undertake innovative activities.
• Regulatory focus: Shifts from business bans to assessing banks’ risk management and capital adequacy.

How the New Regulations Open the Door for Banks to Engage in Crypto Business

The most significant breakthrough of this policy adjustment is that it delineates differentiated pathways for banks of different types to participate in the crypto ecosystem. According to the 12-page new policy statement, insured state member banks (those with FDIC deposit insurance) remain subject to strict restrictions under Section 24 of the Federal Deposit Insurance Act when engaging in new activities. However, for banks like Custodia Bank—which do not provide deposit insurance—a “case-by-case approval” pathway is now available.

This means that specialized institutions focused on digital assets can now formally submit applications to the Federal Reserve Board requesting approval to engage in activities that are not yet open to insured banks, such as holding large amounts of Bitcoin and Ethereum for clients or building stablecoin issuance and settlement systems linked to fiat currency. Although Vice Chair Michael Barr, who oversees regulation at the Fed, expressed dissent, believing that the unified restrictions of 2023 helped maintain fair competition, his differing opinion underscores the tilt of this policy shift toward certain types of banks.

For the entire banking industry, this new policy offers not just a “pass,” but a clear “roadmap” and a set of explicit “traffic rules.” Banks interested in exploring crypto custody, asset tokenization, blockchain settlement, or stablecoin integration now have:

• An official application and approval process;
• Clear guidance on regulatory expectations;
• An environment that no longer presumes crypto activities are inherently unsafe.

This fundamental shift from “principle-based prohibition” to “permitted under regulation” is structural and profound.

Custodia Bank’s Turning Point: From Rejection to Hope

The Fed’s policy reversal is closely linked to the fate of a bank called Custodia Bank. Founded in 2020 by industry veteran Caitlin Long, this bank is a Wyoming-chartered special purpose depository institution whose business model is to provide compliant banking, custody, and payment services for digital assets. As a “non-insured bank” holding 100% reserves and not offering federal deposit insurance, Custodia was the primary target of restrictions in the 2023 policy, and its application for a master account was rejected at that time.

A Fed master account is a core infrastructure of the US banking system, allowing banks with access to directly perform Fed payment services without intermediary banks—crucial for real-time, large-value crypto-related payments and settlements. The restrictions in the previous policy severely limited Custodia and similar new banks from obtaining equal access to financial services, constraining their business development.

The new policy directly removes the key basis for denying Custodia’s application. As a non-insured state member bank, Custodia can now submit a case-by-case application to the Fed for its intended crypto activities under the new framework. This is not only a victory for Custodia but also demonstrates a potential pathway for Wyoming’s SPDI model and other digital asset-focused trust companies to gain acceptance into the mainstream financial system, with strong illustrative significance.

Far-Reaching Impact on the US Crypto Regulatory Landscape

This move by the Fed is not an isolated event. It is an important part of the broader trend of easing regulation on digital assets in the US. This year, we have seen the Office of the Comptroller of the Currency approve trust charters for multiple crypto companies, and the Commodity Futures Trading Commission has launched related pilot programs. These coordinated efforts send a coherent signal: the US is shifting from “defensive regulation” to “framework-based regulation,” aiming to incorporate crypto activities into the existing regulatory system rather than outright banning them.

Industry-wise, the most immediate beneficiaries are those seeking cooperation with traditional banks or requiring bank-level custody and payment services—crypto institutions, trading platforms, and large asset managers. Compliance with fiat currency entry and exit channels is expected to become smoother. Moreover, stablecoin issuance and regulation are likely to become the next focus for banks venturing into crypto, with the new policy removing a significant obstacle to such innovation.

Of course, this does not mean banks can freely conduct any crypto activity. The new policy sets clear review thresholds, requiring applicants to demonstrate strong risk management, sufficient capital, and clear disposal plans. Regulatory prudence remains, but the approach has shifted from “blanket prohibition” to “conditional approval.” The future battleground will focus on approval standards and criteria for specific cases.