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Federal Reserve tipped to allow crypto banks to function in traditional systems

Federal Reserve set to allow crypto to function like traditional banks

Image source: Getty Images

Crypto transactions and traditional banking in the United States have always operated as separate entities for over a decade.

However, the tide turned when the Federal Reserve issued an announcement regarding the situation.

The announcement

On Tuesday afternoon, the Federal Reserve issued official guidelines overseeing the process by which “institutions offering new types of financial products or with new charters” could be granted “prime accounts.”

The main account provides a key financial status that allows direct payments with (and access to) the Fed – state-licensed banks hold a main account.

They released a 49-page “final guidance” that mentions the word “cryptocurrency” once when discussing the type of new institutions that seek prime accounts under these guidelines.

However, the ad’s subtext shows a connection to the crypto industry.

Uncertainty about the indigenous institutions of cryptography

In June, Custodia continued the 19 -month federal reserve due to a delay in processing the bank’s request.

Custodia is a cryptographic bank founded by Caitlin Long, former director general of Morgan Stanley.

The Fed request documents for a main account have a typical period of execution of five to seven working days.

The delay can be attributed to the uncertainty of the Fed on how you can give native cryptographic institutions such as traditional depositions and banking beams.

Kraken is another cryptographic bank which does not yet have to find out about its main account request.

In early January, Federal Reserve Chairman Jerome Powell attributed the delay to the “tremendous precedent” for the decision.

The guidelines

The Fed hopes the guidelines will help streamline the application process for institutions such as Custodia and Kraken.

Fed Vice Chairman Lael Brainard released a statement stating:

“The new guidelines provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services in order to support a safe, inclusive, and innovative payment system.”

The guidelines create a tiered framework in which applicant institutions are organized according to their level of apparent risk.

  • Tier 1 is made up of state-insured applicants
  • Tier 2 includes establishments that are not federally insured but are still subject to “federal oversight”.
  • Tier 3 includes institutions that are not federally insured or subject to prudential supervision, but are “subject to a substantially different and potentially weaker supervisory or regulatory framework than…federally insured institutions “.

Crypto-banks like Custodia and Kraken are likely to fall into Tier 3.

A tiered system as such is consistent with language first proposed by the Fed last year.

Caution and risk

While a primary account enforcement framework appears to include crypto companies, the Fed also warned people not to read too much into the announcement.

The Fed emphasized that it doesn’t “establish legal eligibility standards but instead establish a risk-focused framework for evaluating access requests from legally eligible institutions under federal law.”


Federal Reserve releases new guidelines for crypto banks

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