The Federal Reserve Board dropped a bombshell announcement today that stands to upend the requirements for banking for crypto firms. Beginning June 23, 2025 the Federal Reserve will significantly alter its strategy toward bank supervision. Third, it will cease treating “reputational risk” as a defined element of its examination programs. This action indicates that the Fed is somewhat shifting its position. Further, it appropriately acknowledges the developing dynamics between legacy financial institutions and the burgeoning crypto sector. The supervisory materials will begin to focus on issues of culture and reputation, and reputational risk. Instead, they’ll turn to deeper discussions on addressing financial risk.

This move has been widely celebrated by advocates and academics alike. US Senator Cynthia Lummis, a vocal advocate for the crypto industry, stated that the previous aggressive reputation risk policies had effectively "assassinated American Bitcoin & digital asset businesses." The American Bankers Association was among those who hailed the decision. They promised that it would lead to a more transparent and uniform supervisory process. Eliminating reputational risk as a key concern will open up vast new avenues for crypto firms. This would provide clarity and guidance, which would help expand their access to banking services.

For years, a wide swath of crypto companies have been unable to obtain and/or retain banking partnerships within the U.S. Many wouldn’t serve them out of fear of a reputational risk, frequently associated with campaigns such as “Operation Chokepoint 2.0.” Over 30 technology and crypto companies were allegedly denied access to banking services directly during this operation. This has been a huge roadblock for the industry’s expansion and incorporation into the broader financial system. The Fed’s decision would be a major turning point in this narrative.

Potential Benefits for Crypto Firms

Eliminating reputational risk from consideration as a supervisory factor would help clear the path to more collaborative enforcement. This amendment would make it easier for crypto firms to work with traditional banks. This has the potential to open up countless opportunities for both industries. Banks, seeking to stay competitive in a rapidly evolving financial landscape, may find value in partnering with crypto companies to explore new technologies and services. Crypto firms, in exchange, could benefit from the stability and infrastructure of established banking institutions.

How Banks Can Embrace Crypto

  • Exploring stablecoin issuance: Major US banks are in early talks to issue a joint stablecoin, a move aimed at retaining control of payments amid rising crypto and fintech pressure.
  • Providing crypto custody services: Banks can offer secure storage solutions for digital assets, addressing a key concern for many investors. In July, the OCC stated that banks and savings associations could provide crypto custody services for customers, including holding unique cryptographic keys associated with accessing private wallets.
  • Offering interest-bearing crypto accounts: Banks could offer interest-bearing crypto accounts, where customers could invest the crypto on the back end or through other financial tools.
  • Utilizing blockchain for payments: The OCC announced that national banks and federal savings associations can now use public blockchains and stablecoins to perform payment activities, allowing for quicker and more efficient transactions.
  • Acting as a trusted third party: Banks might relieve some of the stress of investors that aren’t experts in the nuances of crypto by acting as a trusted third party that’s well-respected in the finance industry and can keep investors’ assets protected.

How Crypto Can Benefit Commerce

  • Reduced transaction fees: Using crypto as a form of payment could reduce transaction fees and possibly eliminate the cost of float and the need to wait multiple days for cash settlement.
  • Access to new customers: 85% of surveyed merchants see crypto payments as a way to reach new customers.
  • Competitive advantage: Merchants are embracing digital currency payments with the hope of gaining a competitive advantage in the market.
  • Innovative commerce: Using crypto in daily operations could help develop new means of innovative commerce.
  • Lower transaction fees: 77% of surveyed merchants said they are accepting crypto because of its lower transaction fees.

Challenges and Considerations

Though the Fed’s decision is a big win, we should not overlook the fact that hurdles still exist. Industries now considered too risky, such as crypto companies, would still likely have trouble creating or upholding banking connections. Banks will continue to have some discretion in making decisions that reflect their own risk management assessments and concerns about changing market dynamics, which may still be subjective.

In addition, crypto firms should go above and beyond and cultivate a culture of compliance focused on adhering to every relevant law and regulation. The Fed took the position that banks have a responsibility to maintain robust risk management. While it’s true that reputational risk is no longer a specific supervisory factor, this change isn’t a signal that regulatory expectations in general are letting up. The crypto industry has weathered tough storms before. For instance, as part of Operation Chokepoint 2.0, more than 30 tech and crypto businesses were blocked from obtaining banking services in the US.

US Senator Cynthia Lummis welcomed the Fed’s decision as a clear win. As a follow up to this announcement, she noted that more work remains in supporting crypto firms. This further highlights the need for continued dialogue between regulators, banks, and the crypto space. Together, they can help build a more inclusive and innovative financial ecosystem.

Actionable Insights for Crypto Businesses

Here are some actionable insights:

  1. Strengthen Compliance Programs: Focus on robust compliance programs that address anti-money laundering (AML), know-your-customer (KYC), and other regulatory requirements. Demonstrating a commitment to compliance will build trust with potential banking partners.
  2. Enhance Risk Management: Develop comprehensive risk management frameworks that address potential vulnerabilities and demonstrate a proactive approach to mitigating risks.
  3. Communicate Transparently: Be transparent with banks about your business operations, risk management practices, and compliance efforts. Open communication is key to building strong and lasting relationships.
  4. Seek Specialized Banking Partners: Look for banks that have experience working with crypto firms or are actively seeking to expand their services in the digital asset space.
  5. Advocate for Clear Regulations: Engage with industry associations and policymakers to advocate for clear and consistent regulations that support responsible innovation in the crypto industry.

The Fed’s decision to forever purge “reputational risk” as a supervisory consideration is a great victory for the crypto industry. It’s an indication that the balance is tipping, moving us closer to greater acceptance of, and integration with, digital assets into the fabric of the traditional financial system. Nonetheless, legal and operational challenges remain for crypto firms. To create healthy banking relationships and maximize the potential of this transformative technology, they need to lead with a focus on compliance, risk management, and clear communication. DreamingCrypto will continue to follow the signs, read the runes, and ride the rise of the decentralized age, keeping you informed every step of the way.