Banks and Crypto: Congress Weighs Durable Rules Over Shifting Regs

Why It Matters

Federal banking regulators have cycled through permitting, restricting, and again permitting crypto activities as presidential administrations have changed since 2017, according to a new Congressional Research Service (CRS) report. It notes that legislation would result in a more durable outcome, reducing the likelihood of frequent regulatory changes, and that Congress may consider whether a more permanent solution allowing or restricting crypto activities would be preferable.

At stake is whether activities involving cryptocurrencies and digital assets qualify as part of the legally recognized "business of banking" and whether they can be conducted without jeopardizing bank safety and soundness. Because bank losses may ultimately implicate federal deposit insurance or Federal Reserve discount-window access, the report notes that the federal safety net creates moral hazard, with risks not fully borne by banks or their creditors.

The Big Picture

The report identifies three broad paths for Congress: continue deferring to regulators, legislate specific permissions or prohibitions, or combine both approaches.

Congress has never comprehensively defined "the business of banking," leaving federal regulators discretion to determine which novel activities qualify, though lawmakers have named some permissible activities explicitly in statute. Regulators apply a two-prong test, asking whether an activity is related to the business of banking and whether it poses safety and soundness risks. The report says there is disagreement on whether crypto meets either prong.