Federal Reserve releases new guidelines for crypto banks

The Federal Reserve released formal guidelines this afternoon to oversee the process by which “institutions offering new types of financial products or with novel charters” could be granted so-called “master accounts,” a key financial status that allows for direct payments with, and access to, the Fed. All federally-chartered banks possess a master account.

The Fed’s 49-page ‘Final Guidance’ mentions the word “cryptocurrency” only once, when discussing the sort of novel institutions that may seek master accounts under these guidelines. But the subtext of today’s announcement is inextricably linked to the crypto industry.

Custodia, a crypto bank founded by former Morgan Stanley managing director Caitlin Long, sued the Federal Reserve in June, citing a 19-month delay in the Fed’s processing of the bank’s application for a master account. The Fed’s application paperwork for a master account cites a typical turnaround time of five to seven business days.

The delay is likely due to the Fed’s uncertainty over how to grant traditional banking powers to crypto-native institutions like Custodia and Kraken, which has also yet to hear back about its master account application. In January, Federal Reserve Chairman Jerome Powell chalked up the delay to the “hugely precedential” nature of such a decision.

The Fed is hopeful, though, that today’s guidelines will help streamline the application review process for “novel” institutions like Custodia and Kraken.