FRB Statement Promotes a Level Playing Field for All Federally Supervised Banks and Clarifies Permissibility of Certain Crypto-Related Activities | Practical Law

FRB Statement Promotes a Level Playing Field for All Federally Supervised Banks and Clarifies Permissibility of Certain Crypto-Related Activities | Practical Law

The Federal Reserve Board (FRB) issued a policy statement to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status. The statement also clarifies the FRB's position on the permissibility of banks conducting certain crypto-related activities.

FRB Statement Promotes a Level Playing Field for All Federally Supervised Banks and Clarifies Permissibility of Certain Crypto-Related Activities

by Practical Law Finance
Law stated as of 02 Feb 2023USA (National/Federal)
The Federal Reserve Board (FRB) issued a policy statement to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status. The statement also clarifies the FRB's position on the permissibility of banks conducting certain crypto-related activities.
On January 27, 2023, the Federal Reserve Board (FRB) issued a policy statement (Statement) to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status. This includes:
  • National banks.
  • Insured state member banks.
  • Uninsured state member banks.
The Statement is in part a response to the numerous inquiries, notices, and proposals the FRB has recently received from member banks (and member bank applicants) regarding "novel and unprecedented activities," including those involving crypto-assets. In the Statement, the FRB references a January 3, 2023 joint statement by the FRB, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) that highlighted risks associated with crypto assets and the crypto-asset sector that banking organizations should be aware of, including volatility in crypto-asset markets, fraud among crypto-asset sector participants, legal uncertainties, and heightened risks associated with open, public, and/or decentralized networks (see Legal Update, Federal Banking Agencies Issue Joint Statement on Crypto-Asset Risks to Banking Organizations).
The Statement addresses the fact that, while Section 24 of the Federal Deposit Insurance Act (FDIA) generally prohibits insured state member banks from engaging as principal in any activity that is not permissible for national banks, this prohibition does not apply directly to uninsured state banks. To promote a level playing field and limit the possible use of regulatory arbitrage, the Statement declares that the FRB will:
  • Use its discretionary authority under Section 9(13) of the Federal Reserve Act to limit the activities of both uninsured and insured state member banks to those that are permissible for a national bank, consistent with Section 24 of the FDIA.
  • Presumptively exercise its authority to limit uninsured and insured state member banks to engaging as principal in only those activities that are permissible for national banks, unless those activities are permissible for state banks by federal law.
  • Presumptively prohibit uninsured and insured state member banks from holding most crypto-assets as principal. Further, any bank seeking to issue a dollar token would need to:
    • demonstrate to the FRB's satisfaction that it has controls in place to conduct the activity in a safe and sound manner; and
    • receive a nonobjection letter from the FRB before commencing the activity.
The Statement also a reiterates the FRB's principle that:
  • Legal permissibility is a necessary, but not sufficient, condition to establish that a state member bank may engage in a particular activity.
  • Banks must at all times conduct their business and exercise their powers with due regard to safety and soundness.
The Statement became effective upon its publication in the Federal Register on February 7, 2023.
For more information on the permissible activities of banks, see Practice Note, Commercial Banking.