Fed policy makes a U-turn: Withdraws cryptocurrency restriction guidelines, encourages banks to embrace innovative businesses.

The Federal Reserve has issued guidance to the banking industry, encouraging financial institutions to participate in "certain innovative activities." This is another move by U.S. regulatory agencies to incorporate new business collaborations into the traditional financial sector. Michelle Bowman, Vice Chair for Supervision at the Federal Reserve, stated in a release: "By creating pathways for responsible and innovative products and services, the Board is committed to ensuring that the banking industry can continue to operate safely and soundly while remaining modern, efficient, and effective." This action on Wednesday accompanied the institution's withdrawal of a policy statement from 2023 that had sought to restrict the use of certain cryptocurrency activities. Federal Reserve board member Michael Barr, who previously served as Vice Chair for Supervision, opposed the decision. This year, the Federal Reserve has taken steps in the digital asset space, such as considering providing so-called "skinny" master accounts for fintech and cryptocurrency companies. This move may allow these companies to access desired payment channels while meeting specific restrictions. Other regulatory agencies are also taking action to embrace the crypto industry. The Federal Deposit Insurance Corporation (FDIC) recently proposed a framework outlining how banks could apply to issue payment-based stablecoins, while the Office of the Comptroller of the Currency (OCC) provided guidance for banks wishing to act as intermediaries in cryptocurrency transactions.