The U.S. Federal Reserve announces a relaxation of regulations on banks' cryptocurrency and stablecoin activities.

## Multiple strict supervision policies withdrawn

On the 24th, the Federal Reserve Board (FRB) announced a relaxation of regulations regarding banks’ activities related to cryptocurrencies and U.S. dollar-denominated stablecoins.

First, the FRB withdrew the supervisory policy issued in 2022 for state member banks (state-chartered commercial banks that are members of the Federal Reserve System). This requires prior notification to the FRB for planned or ongoing cryptocurrency-related activities.

As a result, in the future, there will be no need to request such notifications from banks, and virtual currency activities will also be monitored through the regular supervision process.

Furthermore, the FRB also withdrew its 2023 supervisory policy, which stated that state member banks must obtain prior approval from the FRB when engaging in U.S. dollar-backed stablecoin-related activities.

What is a stablecoin?

Refers to cryptocurrencies whose prices are always stable (stable). Stablecoins are a type of digital asset, and unlike volatile assets such as BTC, ETH, and XRP, they are backed by the US dollar, among others, with the aim of maintaining their value. In addition to stablecoins backed by the US dollar (USDT, USDC), there are also stablecoins that utilize algorithms.

In addition, the FRB issued two statements in 2023 in conjunction with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) regarding banks’ cryptocurrency activities and exposure to cryptocurrencies.

In 2022, this was issued as a response to the crash of the algorithmic stablecoin “TerraUSD” and the bankruptcy of the major exchange FTX.

The first statement indicated that holding or issuing cryptocurrencies is likely to be incompatible with safe and sound banking practices, and that strict scrutiny would be implemented on banks engaged in related activities.

The second statement pointed out that deposits from cryptocurrency-related companies (customer asset deposits and stablecoin reserves) are subject to high liquidity risks and the potential for sudden outflows. It called for thorough risk assessments and stress tests.

The fact that the FRB has withdrawn such a statement this time has lowered the barriers for banks to enter the cryptocurrency sector.

The FRB stated that it is considering whether it is appropriate to issue additional guidance in the future to support innovations related to virtual currency activities in cooperation with the FDIC and OCC.

Michael Saylor, chairman of Strategy, known for its Bitcoin (BTC) financial strategy, also posted on X in response to this notification, stating that “banks can now freely support Bitcoin.”

After the establishment of the Trump administration, both the FDIC and the OCC had already officially stated that supervised financial institutions could engage in cryptocurrency-related activities without prior approval. With the recent statement from the FRB, all three agencies have withdrawn their previous guidance that had led to the suppression of cryptocurrency-related activities.

On the 17th, Fed Chairman Powell positively stated that stablecoins are “digital products that have the potential to be widely accepted and should have standard consumer protections and transparency.” He also welcomed the stablecoin legislation.

In the United States, a stablecoin bill is being advanced in both houses. In particular, it is recognized that dollar-denominated stablecoins help maintain the dominance of the US dollar in the digital realm.