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The Federal Reserve System stated that it intends to presumptively prohibit state banks from holding crypto-assets as principals without permission from the Fed and OCC.

In an updated guide issued on the Federal Register, the Board of Governors of the Federal Reserve System said that they had received inquiries about the permissibility of “certain crypto-asset-related activities” for state member banks.

Holding crypto-assets as principal

The board stated that it had yet to identify any authority, federal statute, or rule permitting state banks to hold most crypto-assets, including bitcoin and ether.

“Therefore, the Board would presumptively prohibit state member banks from engaging in such activity under section 9(13) of the Act.” read the statement.

It further stated that the presumption basis is concerned about safety and soundness, given that the crypto sector is unregulated.

The board also stated that state member banks interested in issuing dollar-denominated tokens are required to adhere to the conditions of the OCC, including demonstrating the ability to conduct the activity safely and soundly.

Shortly after the news, leading crypto exchange Binance announced that it would temporarily halt U.S. dollar bank transfers effective Feb. 8. 2022.

Room for push back

The board clarified that its presumption could be rebutted if presented with facts that compel it to allow deviations in the regulatory frameworks.

“This presumption could be rebutted if there is a clear and compelling rationale for the Board to allow deviations in regulatory treatment among federally supervised banks and the state member bank have robust plans for managing the risks of such activities in accordance with principles of safe and sound banking.”

Federal Reserve.

The board further noted that they have yet to receive facts and circumstances that would warrant rebutting its presumption. 

Federal Reserve crypto policy

Federal Reserve member banks consist of financial institutions at the state level that meets the reserve’s operational requirements.

State banks can only engage in activities that the Office of the Comptroller of the Currency (OCC) has allowed.

The Federal Reserve crypto policy requires that state member banks conduct all their activities safely and reasonably that comply with risk management, anti-money laundering, and consumer protection requirements.

For new activities such as holding crypto-assets as principal, the state member bank must demonstrate to the Federal Reserve that it can manage the risks of the activity effectively.

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