Fed Chair Powell: Are Banks Ready to Serve Crypto Customers?

• Fed Chair Jerome Powell confirmed banks can offer crypto services if done safely.
• A banker suggested Powell’s remarks imply that banks are free to engage with crypto at their own risk, subtly warning them against doing so.
• FDIC letters reveal past scrutiny of banks seeking to engage with crypto.

Federal Reserve Chair Jerome Powell reasserted that banks can offer cryptocurrency services if they control the risks. Speaking at a press conference, Powell stated banks must ensure their crypto activities stay safe given the dangers tied to digital assets.

“We’re not against innovation,” Powell said. “And we certainly don’t want to take actions that would cause banks to terminate customers who are perfectly legal just because of excess risk aversion.”

Regulatory Hurdles and the Crypto ‘Debanking’ Issue

Powell’s remarks come as U.S. regulators discourage banks from working with crypto firms. After a court order, the Federal Deposit Insurance Corporation (FDIC) sent letters to banks interested in crypto services, instructing them to pause operations without granting formal approval.

Related: SAB 121 Rollback Rewrites Rules for U.S. Banks and Crypto

Coinbase initiated the legal case behind these disclosures, seeking evidence of crypto-related de-banking. Although the letters did not prove widespread de-banking, the incoming FDIC acting chairman acknowledged the problem. 

A Congressional committee has also probed whether regulatory bodies pressured banks to sever ties with crypto companies. This probe echoes the earlier investigation into Operation Choke Point, where certain industries faced banking restrictions over regulatory worries.

FOX Business Suggests Powell Is Sending Mixed Signals

Despite Powell’s latest assurances, FOX Business journalist Eleanor Terrett suggests his comments may have a discouraging undertone.

Related: SEC Loosens SAB 121 Rules, Paving the Way for Banks to Enter Crypto Custody Market

Terrett cited a source from a major bank who interpreted Powell’s statement as saying, “I wouldn’t do it [serve crypto customers], but you [banks] make your own decisions.”

According to the source, Powell’s remarks imply that banks are free to engage with crypto at their own risk, subtly warning them against doing so.

The source also pointed out that while banks are eager to serve crypto customers, regulatory uncertainty forces many institutions to remain cautious, fearing potential fallout from authorities.

Banks Already Engaged in Crypto Services

Some banks have already stepped into crypto-related services despite these hurdles. In his statement, Powell confirmed banks have had the free will to engage in crypto services. 

However, he emphasized that banks operating within the Federal safety net, including those with deposit insurance, must be especially cautious. “The threshold has been a little higher for banks engaging in crypto activities because they’re so new,” he noted.

When asked about consumer protection, Powell stated that financial education is key. Yet, it is not the Federal Reserve’s role to regulate individual investments. Instead, he pointed to ongoing discussions in Congress about establishing a stronger regulatory framework for crypto.
“We’ve actually spent a lot of time working with members of Congress on this,” Powell said. “I think it would be a very constructive thing for Congress to do.”