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The Federal Reserve voted Wednesday to scrap a 2023 policy that blocked crypto-focused banks from accessing its payment systems, reversing restrictions that effectively barred uninsured state-chartered institutions from obtaining master accounts.
The policy reversal—which drew a dissent from Fed Governor Michael Barr—clears the path for digital asset banks like Wyoming’s Custodia to reapply for Federal Reserve membership after years of litigation.
Master accounts provide direct access to the Fed’s payment rails, allowing banks to settle transactions without intermediaries.
Under the updated guidance released Wednesday, both insured and uninsured state member banks supervised by the Fed may now engage in innovative activities, including cryptocurrencies, provided they meet supervisory standards.
“The new policy statement creates an avenue for both insured and uninsured Board-supervised state member banks to engage in certain innovative activities,” the Federal Reserve wrote, directly addressing the rigid Crypto-focused restrictions that previously locked out entire business models.
The earlier framework required uninsured banks engaged in activities not permissible for national banks to follow the same limitations as federally insured institutions—despite having lawful state charters allowing such operations.
Critics argued that this policy distorted competition and punished crypto-focused banks.
The impact of the former Crypto-focused restrictions was perhaps most visible in the high-profile rejection of Custodia Bank’s application for a Federal Reserve master account.
Custodia, a Wyoming-based digital asset custody bank without FDIC insurance, applied for access in 2020 but was denied.
Custodia CEO Caitlin Long welcomed the Fed’s reversal, calling it a long-overdue correction and sharply criticizing Federal Reserve Governor Michael Barr, who dissented from the updated policy.
According to Long, the Fed relied on guidance that had not yet been finalized when it rejected Custodia’s bid.
The Fed broke the law by citing this guidance, she said, arguing the decision was politically motivated following the collapse of FTX.
Per insiders, we now know that Barr directed Fed staff to find something to deny Custodia at the time, Long stated, adding that the now-rescinded Crypto-focused restrictions were part of that effort.
Barr, however, defended the original 2023 framework, warning that easing Crypto-focused restrictions could invite regulatory arbitrage and weaken financial safeguards.
I cannot agree to rescind the current policy statement and adopt a new one that would, in effect, encourage regulatory arbitrage, undermine a level playing field, and promote incentives misaligned with maintaining financial stability, Barr said in a separate statement.
His dissent underscores a growing divide within the Federal Reserve over how far crypto integration should go—and at what risk to the broader system.
Despite the pushback, the policy change signals a measurable warming toward crypto innovation inside the central bank.
Under the new framework, uninsured banks can now seek Fed membership without being automatically disqualified based on their primary business activities.
This access would allow crypto-focused institutions to settle transactions directly through the Fed, bypassing intermediaries and reducing systemic friction—one of the industry’s biggest long-standing complaints about Crypto-focused restrictions.
Vice Chair for Supervision Michelle W. Bowman emphasized that innovation and safety are not mutually exclusive.
New technologies offer efficiencies to banks and improved products and services to bank customers, Bowman said.
By creating a pathway for responsible, innovative products and services, the Board is helping ensure that the banking sector remains safe and sound while also modern, efficient, and effective.
Earlier this month, Bowman also signaled plans to pursue new regulatory frameworks governing both banks and stablecoin issuers, potentially under the GENIUS Act.
These efforts aim to create consistent capital, diversification, and supervisory standards—suggesting that while Crypto-focused restrictions are easing, oversight is far from disappearing.
As a regulator, it is my role to encourage innovation in a responsible manner, Bowman said, adding that agencies must continuously adapt to emerging risks.
The policy shift means crypto banks like Custodia can now reapply for Fed membership—but with Governor Barr’s dissent signaling continued internal resistance, approval is far from guaranteed.
The real test comes when the first applications arrive and the Fed must decide whether its regulatory about-face translates into actual approvals.
