Fed Scraps Crypto Oversight Program After Trump’s “Debanking” Outcry

The U.S. Federal Reserve has announced that it will dismantle its “Novel Activities Supervision Program,” a regulatory initiative launched in 2023 to more closely oversee banks’ involvement in cryptocurrencies, stablecoins, and other emerging financial technologies.

The move comes amid political pressure and growing criticism from pro-crypto lawmakers, with some framing the program as part of a broader “debanking” agenda targeting digital asset firms.

Fed Says Specialized Crypto Banking Oversight No Longer Needed

In a statement released Friday, the central bank confirmed it would “sunset” the program and return to “monitoring banks’ novel activities through the normal supervisory process.”

The central bank said the program, launched in August 2023 under Supervisory Letter SR 23-7, achieved its goal of strengthening its understanding of the risks tied to digital assets and related bank risk-management practices, making the specialized oversight framework unnecessary.

The initiative was designed as a risk-focused tool to supervise activities such as crypto-asset custody, crypto-collateralized lending, distributed ledger technology (DLT) projects, and traditional banking services provided to crypto companies and fintechs.

It also imposed heightened scrutiny on stablecoin issuance and transactions, requiring pre-approval and proof of robust risk controls.

At the time, Fed officials argued that the framework would help resolve “unique questions around permissibility” and mitigate vulnerabilities, including money laundering, customer runs, and cybersecurity breaches.

The program brought together digital-asset specialists and conventional bank examiners to merge technical and regulatory expertise.

However, crypto-friendly lawmakers criticized the effort as part of “Operation Chokepoint 2.0,” an alleged campaign to cut off banking access for politically disfavored industries, including digital asset firms.

Senator Cynthia Lummis (R-WY), a vocal blockchain advocate, celebrated the Fed’s reversal on X (formerly Twitter), stating that “Big win for putting an end to Operation Chokepoint 2.0. The Fed announced it’s killing the targeted supervision of digital asset banking activities. There’s still more to do, but this is real progress toward a level playing field for crypto.”

The policy shift comes against a heated political backdrop. President Donald Trump has repeatedly condemned what he calls “debanking” by federal regulators and has vowed to dismantle programs he sees as hostile to cryptocurrency and innovation.

Although the Fed did not reference political pressure in its decision, Friday’s statement suggested the lessons learned from the program would now be integrated into standard oversight.

The withdrawal of SR 23-7 removes the extra supervisory layer that applied to banks involved in complex fintech partnerships, stablecoin operations, and concentrated crypto service provision.

Going forward, such activities will be assessed under the same risk-based framework used for other bank operations.

Still, the Fed stressed that expectations for safety, soundness, and compliance remain in place, meaning banks will continue to face strict requirements for risk management and regulatory approvals before engaging with digital assets.

U.S. Regulators Drop ‘Reputational Risk’ Rule, Easing Bank-Crypto Ties

Under the Biden administration, U.S. federal banking agencies imposed tight restrictions on how banks could work with crypto businesses. That approach has shifted dramatically since President Donald Trump, a vocal supporter of digital assets, took office earlier this year.

In March, Trump signed a long-anticipated executive order establishing a friendlier federal framework for digital asset oversight. The move was followed by the Federal Deposit Insurance Corporation (FDIC) removing “reputational risk” as a supervisory factor, a policy long criticized by crypto advocates as a vague excuse to block banking relationships.

The FDIC also issued guidance clearing the way for supervised banks to engage in crypto-related activities without prior approval, provided they meet existing safety and compliance standards.

In July, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency (OCC) issued a joint statement reminding banks offering crypto custody to maintain strong risk management.

The agencies stressed that banks can provide custody in fiduciary or non-fiduciary capacities, but must safeguard cryptographic keys, comply with federal and state laws, and implement protections against cyber threats and mismanagement.

The regulatory shift continued on June 24, when the Fed formally removed “reputational risk” from its oversight framework, promising more transparent and consistent supervision.

Rob Nichols, president of the American Bankers Association, called it “a long-overdue step” toward letting banks make business decisions based on market conditions rather than regulatory opinion.

Congress has also moved toward clarity. On July 18, President Donald Trump signed the landmark GENIUS Act, marking the entry of the United States into a new era of federally regulated stablecoins.

Meanwhile, Trump signed another executive order urging regulators to remove barriers that prevent 401(k) retirement plans from offering alternative assets such as cryptocurrencies.

If enacted, the measure could put digital assets directly into mainstream retirement savings, a landmark shift for U.S. investors.

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