FDIC Changes Stance, U.S. Banking Industry May Welcome New Framework for Encryption Asset Regulation

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U.S. banking regulators are developing a more flexible and transparent framework for banks participating in cryptocurrency activities. Recently, the acting chair of the U.S. Federal Deposit Insurance Corporation (FDIC) outlined the agency's evolving stance on crypto-related activities at a banking summit.

A key area that the FDIC is reviewing is the interaction between regulated banks and public permissionless blockchains. While regions outside the United States have long allowed banks to use public chains, U.S. regulators have taken a more cautious approach. The FDIC now believes that a complete ban on the use of public blockchains is too strict, but appropriate safeguards are still necessary.

The agency is evaluating existing cross-agency guidelines to establish long-term standards for the responsible use of public networks. It is also considering whether public chains can operate in a permissioned model. Regulators must assess how to define and regulate blockchain configurations that blur the boundaries between open and permissioned environments.

The FDIC stated that it will issue more guidance on specific use cases for digital assets. The agency will continue to assess outstanding issues related to the scope of crypto-related activities, regulatory treatment of blockchain-based products, and expectations for risk management. The broader goal is to establish a consistent and transparent regulatory framework that promotes innovation while ensuring compliance with safety and soundness standards.

Recently, the FDIC revised its stance on cryptocurrency assets and blockchain technology, rescinding the previous requirement for regulated institutions to notify the agency before engaging in digital asset and blockchain activities. This represents a fundamental shift within the U.S. banking system.

Regarding stablecoin regulation, the FDIC is reviewing potential updates to deposit insurance regulations to clarify the eligibility requirements for stablecoin reserve deposits. Key issues being assessed include liquidity risk management, safeguards against illicit finance, and cybersecurity standards.

The FDIC is also considering whether to further clarify the boundaries of activities allowed in this area or to expand regulatory guidance to cover more use cases. In addition, there is a need for clearer regulatory treatment regarding tokenized real-world assets and liabilities, including tokenized commercial bank deposits.

However, the FDIC has expressed concerns about whether counterparties can use smart contracts to withdraw funds at face value after a bank failure. Without safeguards to prevent such fund outflows, it could increase liquidation costs. This concern is driving internal efforts at the FDIC to evaluate technological solutions to prevent unexpected fund outflows in the context of bank resolution.

These changes by the FDIC mark its formal move towards providing regulatory clarity for banks exploring digital asset infrastructure, while emphasizing the need for prudent risk control and further clarifying the activities that are permitted.