Key Highlights
- A new Congressional Research Service report examines whether U.S. banks can conduct a broader range of crypto-related activities.
- Bank regulators generally assess whether an activity relates to banking and whether it creates safety and soundness risks.
- Federal policy on crypto banking has shifted repeatedly since 2017.
The Congressional Research Service (CRS) has outlined the debate over whether U.S. banks can conduct a wider range of cryptocurrency and digital-asset activities under existing banking law.
In a report published September 30, CRS said banks are generally limited to activities that fall within the “business of banking” or are related or incidental to it. Whether specific crypto services meet those standards remains a question for Congress and federal banking regulators.
Regulators generally consider whether an activity is sufficiently connected to banking and whether it could create risks to a bank’s safety and soundness.
Crypto banking policy has shifted since 2017
The CRS report traces repeated changes in federal policy toward crypto-related banking activities since 2017.
Depending on the administration and regulatory leadership, federal banking agencies have issued guidance that allowed, restricted or later restored certain activities without requiring case-by-case approval.
CRS said the changes have raised questions over whether crypto banking policy should continue to be shaped mainly through regulatory decisions or receive more permanent treatment through legislation.
FDIC proposal addresses interstate bank rules
The CRS report comes shortly after a separate Federal Deposit Insurance Corporation (FDIC) proposal concerning state-chartered banks operating across state lines.
Approved by the FDIC Board on September 17, the proposal would clarify that when host-state laws do not apply to an out-of-state national bank providing a service, those laws would generally not apply to an out-of-state state-chartered bank providing a comparable service.
The proposal is based on Section 24(j) of the Federal Deposit Insurance Act and is intended to maintain parity between state and national bank charters.
The FDIC proposal does not authorize specific cryptocurrency activities or determine that any particular state law is preempted. It instead addresses how host-state laws apply when out-of-state state banks provide services.
GENIUS Act establishes stablecoin rules
The CRS report identifies the GENIUS Act as an example of Congress establishing specific rules for a crypto-related banking activity.
The law made payment stablecoin issuance, custody and related activities permissible for bank subsidiaries, creating a statutory framework for an area that had previously been subject to regulatory interpretation.
Other digital-asset activities remain subject to existing banking authorities and the questions outlined by CRS.
Crypto risks depend on the activity
CRS also examines the risks banks could face from greater exposure to crypto markets.
Digital assets can be volatile, potentially exposing banks to losses through activities such as crypto-backed lending. A sharp decline in collateral values, for example, could increase losses for banks extending loans against digital assets.
The report also discusses broader financial-stability concerns, while noting that diversification can reduce certain forms of risk.
As a result, the potential impact on banks depends on the specific activity and how it is structured.
AML compliance raises additional questions
The structure of some blockchain transactions also creates AML compliance considerations for banks.
CRS notes that the pseudonymous nature of some crypto activity can create challenges for anti-money laundering compliance.
Banks are already subject to customer-identification, Bank Secrecy Act and related AML requirements. The question is therefore whether those controls can be applied effectively to services involving digital assets and blockchain infrastructure.
House and Senate CLARITY versions differ
The debate also extends to the CLARITY Act (H.R. 3633).
According to CRS, the House-passed version would allow banks to use digital assets or blockchain technology for activities that are otherwise permitted by law. It would also add certain crypto activities to the list of permissible activities for financial holding companies.
The Senate-reported version instead identifies 11 categories of crypto activities that would be permissible for banking organizations and credit unions.
CRS notes that some of these activities could go beyond what banks can currently do with comparable traditional financial products.
For example, banks currently face restrictions on underwriting and dealing in certain securities. The Senate-reported CLARITY Act would allow banks to underwrite and deal in digital assets more broadly.
What CRS identifies as the policy choice
CRS presents several possible approaches to determining which crypto activities banks can conduct.
Congress could establish specific permissions or restrictions through legislation, while regulators could continue determining whether individual activities fit within existing banking authorities.
CRS notes that legislation can provide greater stability, while regulatory decisions can be adjusted more easily as markets and technology develop. Regulators also have access to supervisory information that can inform their assessment of bank-specific risks.
What the debate means for crypto banking
The CRS report does not recommend a particular approach. Instead, it examines how existing banking rules apply to digital assets and where additional statutory or regulatory decisions may be needed.
The areas under discussion include stablecoin issuance and custody, crypto-backed lending, digital-asset transactions and the use of blockchain infrastructure by banks.
The GENIUS Act has already established a statutory framework for certain payment-stablecoin activities, while the CLARITY Act could establish additional permissions depending on which version advances.
Separately, the FDIC’s state-bank parity proposal concerns the application of state law to out-of-state state-chartered banks and does not specifically change the rules governing cryptocurrency activities.
The central policy question is how existing banking authorities should apply to digital assets and which activities, if any, require specific congressional authorization.
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