Crypto Chaos: Fed Changes its Mind! 🤯

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It is with a degree of astonishment – and, one might add, a rather belated recognition of prevailing winds – that one observes the US Federal Reserve has seen fit to withdraw its guidance of 2023. This guidance, as it were, had imposed certain restrictions upon Fed-supervised banks, even those of a less securely established nature, regarding their entanglement with the decidedly modern phenomenon of ‘crypto,’ or as some less charitable souls might term it, ‘speculative vapor.’

The former rule, seemingly constructed upon a foundation of excessive caution, decreed that uninsured banks should be held to the very same standards as their federally insured brethren. A most sensible notion, one would think, preventing – or attempting to prevent – the more precarious institutions from dabbling in ventures fraught with, shall we say, uncertainty.

This, naturally, curtailed their ability to engage in activities deemed unsuitable for those of greater standing, activities such as providing services related to these ‘cryptocurrencies,’ thereby diminishing the prospects of Fed membership for any bank whose primary endeavours were so… unconventional. 🙄

The Fed’s Explanation: Time Marches On, Apparently…

The Federal Reserve, in a display of remarkable candour, has declared the previous guidance to be, well, outdated. It appears the financial system – and the Board’s comprehension of these ‘innovative’ products – have undergone a transformation since 2023. One can only imagine the flurry of urgent meetings dedicated to catching up with the times! “No longer appropriate,” they proclaim. A most decisive statement, indeed.

Miss Caitlin Long, a lady of considerable fortitude and the guiding force behind Custodia Bank, has expressed her approval with no small measure of satisfaction. She opines that this very guidance was the cause of a previous denial of an application for a ‘master account’, a rather grand term for simply holding balances at the central bank. 🤫

A ‘master account’, one learns, allows a financial institution the privilege of dealing directly with the US central bank, bypassing the necessity of relying on other, less esteemed establishments. Miss Long further alleges something of an impropriety, claiming the Fed anticipated issuing this guidance before it was even official. She concludes with a note of triumph, observing that those responsible for the earlier decision are now, thankfully, ‘gone or out of power.’ A rather pointed observation, one must concede. She extends her gratitude to Messrs. Bowman and Waller, clearly considering them allies in this momentous affair.

Encouraging Innovation (or Recklessness?)

This alteration in policy is accompanied by new guidance, intended to create a legitimate avenue for both insured and uninsured banks to pursue ‘innovative activities’ – namely, cryptocurrencies – provided they adhere to certain expectations regarding risk management. One hopes these expectations are robust, lest we witness a repeat of past financial imbroglios.

Madam Michelle Bowman, the Vice Chair for Supervision, assures us this will promote a banking sector that is “safe and sound, modern, efficient, and effective.” A worthy aspiration, to be sure, assuming the aforementioned risk management expectations are not merely ornamental.

A Dissenting Voice (and Whispers of Chokepoint 2.0)

However, not all are pleased. Governor Michael Barr has voiced his dissent, arguing that equal treatment between banks is paramount to maintaining a level playing field and preventing, as he terms it, ‘regulatory arbitrage’ – a rather unfortunate phrase implying some banks might attempt to exploit loopholes. He fears the new policy will “encourage regulatory arbitrage, undermine a level playing field, and promote incentives misaligned with maintaining financial stability.” A grave prediction, indeed.

There are, it is whispered, allegations that Governor Barr is connected to something called ‘Operation Chokepoint 2.0,’ an endeavour aimed at curtailing the operations of crypto companies. Yet, he is also reported to have previously provided counsel to Ripple and advocates for sensible regulation of stablecoins. A man of complexities, then! 🤔

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2025-12-18 06:29