R48430 — Banking and Cryptocurrency: Policy Issues

The rapid growth in value of cryptocurrencies and digital assets (hereinafter, crypto) has led to growing banking needs for the crypto industry and growing interest in new potential business opportunities from the banking industry. Crypto offers profit opportunities and poses risks to banks. The failure of FTX, a major crypto exchange, and closure of two banks (Signature and Silvergate) that experienced losses due to their involvement with crypto clients in 2023 contributed to a change in regulatory approach that effectively made it more difficult for banks to engage in crypto activities (either by banking crypto firms or allowing clients to transact in crypto). Bank involvement with crypto can fall into three categories. First, banks can provide traditional banking services, such as lending and deposit taking, to crypto firms. Second, banks can provide crypto services, such as payment applications and tokenization. Third, crypto firms can seek to acquire banks or bank charters. Traditional banking services provided to crypto firms (if performed safely and soundly) are acceptable to regulators under the general philosophy that regulators should not discriminate against any particular legal industry. Nevertheless, some crypto market participants have expressed concern that they are having trouble accessing traditional banking services because of de-risking concerns, which they have referred to as “Operation Chokepoint 2.0.” Bank involvement in crypto activities faces a two-prong regulatory test. First, an activity must be permissible under law—Congress has limited banks’ activities related or incidental to the business of banking. (Certain nonbank subsidiaries can also engage in activities that are financial in nature.) Second, an activity must be safe and sound. Federal banking regulators have significant discretion over both findings. As agency leadership changed following changes in the Administration, policies have shifted. Agency leadership appointed by President Trump approved banks’ conducting several specific activities involving crypto so long as they could conduct them on a safe and sound basis. Agency leadership appointed by President Biden required case-by-case supervisory approval before a bank could undertake any crypto activity, and expressed public skepticism that several categories of activities could ever be undertaken on a safe and sound basis. Another philosophical shift in how banks are allowed to engage with crypto may be forthcoming. In January 2025, President Trump rescinded a Biden-era executive order and issued a new one supporting the growth and use of digital assets. Crypto firms could seek federal bank charters from the Office of the Comptroller of the Currency (OCC) or state charters. Charters can be of limited purpose—prohibiting deposit taking, for example. The OCC has granted at least three provisional charters (one of which was made permanent) to limited purpose banks involved in crypto activities. A few states, such as Wyoming and New York, have created charters to attract crypto firms. Once a firm has been granted a state charter, federal regulators have jurisdiction only if the firm seeks a master account from the Fed, Fed membership, or approval to accept insured deposits. To date, no state-chartered firm has successfully obtained any of these. The 118th Congress considered legislation to create an overarching regulatory framework for crypto (H.R. 4763) and a regulatory framework for a type of crypto called stablecoins (H.R. 4766). In the absence of such frameworks, bank regulators have mostly used guidance and a case-by-case approval process to set de facto crypto policy for banks. Congress can continue to defer to the bank regulators, but if it wishes for a more durable approach to limit or expand bank involvement in crypto, it could legislate within a broader framework or just for banks. The case for or against greater banking involvement in crypto can be posed as: would it make banks riskier or crypto safer, and what is the ideal tradeoff between the two?

Curated by CRS — every bill listed in this report's relatedMaterials. Edge type cited_in_report, gold confidence.

• HR 4766 — Clarity for Payment Stablecoins Act of 2023 · 118th Cong
• HR 4763 — Financial Innovation and Technology for the 21st Century Act · 118th Cong
• S 2226 — National Defense Authorization Act for Fiscal Year 2024 · 118th Cong
• HJRES 109 — Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule · 118th Cong