Fed Vice Chair Bowman announces a major policy shift: removal of "reputational risk" review, ending the banking service dilemma for encryption companies.

Michelle Bowman, the Vice Chair responsible for oversight at the Fed, delivered a significant speech at a Blockchain seminar in Wyoming, officially acknowledging for the first time that crypto assets companies face "Debanking" issues due to regulatory uncertainty. She announced that the Fed had removed the consideration of "reputational risk" from bank oversight at the end of June and elaborated on four new regulatory principles centered around regulatory certainty, customization, consumer protection, and U.S. competitiveness. This article provides an in-depth analysis of the details, causes, and profound impacts of this historic policy shift on crypto banking services and the integration of blockchain with TradFi.

Historic Recognition and Policy Shift: Facing the Issue of "De-Banking"

Fed Vice Chair Michelle Bowman acknowledged that crypto companies have experienced "debanking" due to regulatory uncertainty. At the Blockchain Symposium in Wyoming on August 19, Bowman also announced a fundamental shift in the Fed's approach to blockchain innovation. She revealed that the central bank removed the reputational risk considerations in bank regulation at the end of June to address the barriers preventing financial institutions from providing services to digital asset companies engaged in legitimate activities. This Fed official stated: "You (the encryption) industry has experienced significant friction in dealing with ambiguous standards from bank regulators, conflicting guidance, and inconsistent regulatory interpretations." Bowman emphasized that banks should not face penalties for providing services to customers engaged in legitimate business operations, and stated that customer choice decisions "are entirely within the purview of bank management," rather than regulatory interference. In addition, she pointed out that the Fed has shifted from a "overly cautious mindset" to embracing blockchain technology within the traditional banking system. She warned that regulators must make choices in shaping the technological framework or allowing innovation to completely bypass the banks, the latter of which could undermine the economic relevance of the banking industry. The Fed is updating the inspection manuals and regulatory materials to ensure the lasting implementation of the removal of reputation risk policies.

Four Core Principles: Building a New Regulatory Framework for Digital Assets

The Fed's vice chairman has established four core principles to guide the regulation of central bank digital assets.

• Regulatory certainty is the top priority, aimed at addressing the industry's concerns about blockchain investment and development in the absence of clear regulatory standards. Bowman questioned whether companies, knowing that regulatory scrutiny would bring uncertainty, would still collaborate with banks instead of seeking alternatives outside the banking system.
• The tailored regulatory framework is the second principle, which requires regulatory agencies to assess use cases based on specific circumstances rather than applying worst-case expectations. The Fed must recognize the unique characteristics that distinguish digital assets from TradFi instruments, while avoiding a one-size-fits-all approach that fails to address actual risk scenarios.
• Consumer protection is the third principle, ensuring that customer-facing products comply with existing consumer protection laws, including prohibiting unfair, deceptive, or abusive practices. The digital asset framework must incorporate the Bank Secrecy Act and anti-money laundering requirements while maintaining the safety and soundness standards of banks.
• The U.S. competitiveness has completed the framework aimed at positioning the United States as the primary global innovation destination. Bowman warned that failing to establish an appropriate regulatory structure could jeopardize the U.S.'s long-term leadership in financial technology development.

Technological Integration and Regulatory Transformation: Embracing the Shift from Theory to Practice

Bowman announced that the Fed's "new regulatory" activities will be reintegrated into the Reserve Bank's examiners, restoring the normal regulatory process for monitoring banks' innovative activities. She proposed allowing Fed staff to hold a minimum amount of digital assets to cultivate a working understanding of Blockchain functions, comparing its necessity to hands-on learning rather than theoretical knowledge. [Editor’s Note: This marks a sudden 180-degree turn from the previous government approach, particularly that of former SEC Chairman Gary Gensler. Gensler taught university-level Blockchain courses at MIT but has never personally engaged with Blockchain using his own funds, admitting that he has never held any digital assets and has therefore never executed any of his own trades.] The Fed recognizes the potential of tokenization in facilitating faster asset ownership transfers while reducing transaction costs and settlement risks. Bowman pointed out that banks of various sizes, including community institutions, can benefit from the efficiency gains brought by asset tokenization technology. In addition, she emphasized that the passage of the GENIUS Act and the President's signing made stablecoins a part of the financial system and had an impact on traditional payment rails. Bowman calls on industry participants to help regulators understand the capabilities of Blockchain to address additional issues beyond current use cases. She specifically requests input on using new technology to combat fraud, believing this presents an exciting opportunity for collaboration between the Fed and the digital asset sector. The Fed vice chairman concluded that innovation and regulation are complementary rather than opposed in creating a more modern and efficient financial system.

Conclusion

The speech by the Vice Chairman of the Fed marks a thorough paradigm shift in regulation, indicating that the highest financial regulatory body in the United States is officially transitioning from adversarial regulation to cooperation and integration. The removal of the vague review standard of "reputational risk" clears the largest subjective obstacle for banks serving crypto enterprises, while the establishment of four principles provides a clear and predictable framework for future regulation. This will not only greatly alleviate the banking account access difficulties faced by crypto companies but also sends a strong signal: the U.S. is actively embracing Blockchain technology, aiming to maintain its global financial leadership by incorporating innovation into the regulatory system rather than shutting it out. For the industry, a new era of deep integration with the traditional banking system is beginning.