Federal Deposit Insurance Corporation’s Shift towards a More Permissive Stance on Crypto
Guidelines for Engagement with Public Blockchains
The Federal Deposit Insurance Corporation (FDIC) is reevaluating its stance on crypto-related activities, including the use of public, permissionless blockchains. In a recent speech, FDIC Acting Chairman Travis Hill addressed the agency’s evolving approach to crypto, acknowledging that a total prohibition on public blockchain use is too restrictive.
Hill highlighted the need for appropriate guardrails to govern the interaction between regulated banks and public blockchains. The FDIC is evaluating existing interagency guidance to develop durable standards for the responsible use of public networks. The agency is also considering the question of whether public chains can operate in a permissioned mode, with regulators assessing how to define and supervise blockchain configurations that blur the line between open and permissioned environments.
FDIC to Issue Further Guidance
The FDIC plans to release additional guidance addressing specific digital asset use cases. Hill emphasized that the agency is continuing to assess open questions related to the scope of permissible crypto-related activities, the supervisory treatment of blockchain-based products, and the risk management expectations for banks operating in this space.
The broader objective is to establish a consistent and transparent supervisory framework that enables innovation while ensuring adherence to safety and soundness standards. Hill noted that the agency’s revised guidance represents a foundational shift in how to treat crypto and blockchain technologies within the US banking system.
Stablecoin Regulations and Deposit Insurance Frameworks
Hill also addressed emerging questions surrounding stablecoins, particularly regarding legislative moves by Congress. The FDIC is examining potential pass-through deposit insurance regulations updates to clarify eligibility requirements for stablecoin reserve deposits. Key issues under evaluation include liquidity risk management, safeguards against illicit finance, and cybersecurity standards.
The agency is considering whether to further define the boundaries of permissible activities in this area or expand the regulatory guidance to include additional use cases. In 2020 and 2021, the Office of the Comptroller of the Currency (OCC) deemed several crypto-related services permissible for national banks, such as stablecoin custody and issuance, participation as blockchain validator nodes, and the acceptance of stablecoin-related deposits.
Tokenized Deposits and Smart Contract Risks
The speech also highlighted the need for clearer regulatory treatment of tokenized real-world assets and liabilities, including tokenized commercial bank deposits. Hill said the FDIC believes that "deposits are deposits, regardless of the technology or recordkeeping deployed." However, he raised concerns about counterparties’ ability to withdraw funds at par using smart contracts after a bank failure, which could increase resolution costs if safeguards are not in place to halt such flows.
This concern is driving internal FDIC efforts to assess technical solutions that could prevent unintended fund outflows during bank resolution scenarios. Hill noted that the challenge lies in aligning on-chain programmability with traditional regulatory protections designed to ensure the orderly winding down of failed institutions.
Conclusion
The FDIC’s shift towards a more permissive stance on crypto-related activities marks a significant development in the regulatory landscape. The agency’s efforts to establish a consistent and transparent supervisory framework are aimed at enabling innovation while ensuring adherence to safety and soundness standards.
FAQs
Q: What is the FDIC’s current stance on crypto-related activities?
A: The FDIC is reevaluating its stance on crypto-related activities, moving towards a more permissive approach.
Q: What is the FDIC’s position on public blockchain use?
A: The FDIC considers a total prohibition on public blockchain use too restrictive, but emphasizes the need for appropriate guardrails to govern such activity.
Q: What is the FDIC’s plan for issuing further guidance on crypto-related activities?
A: The FDIC plans to release additional guidance addressing specific digital asset use cases.
Q: How does the FDIC plan to address stablecoin regulations and deposit insurance frameworks?
A: The FDIC is examining potential pass-through deposit insurance regulations updates to clarify eligibility requirements for stablecoin reserve deposits.
Q: What are the key issues under evaluation for tokenized deposits and smart contract risks?
A: The FDIC is evaluating liquidity risk management, safeguards against illicit finance, and cybersecurity standards.
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