Why It Matters
Federal banking regulators have cycled through permitting, restricting, and again permitting crypto activities as presidential administrations have changed since 2017, according to a new Congressional Research Service (CRS) report. It notes that legislation would result in a more durable outcome, reducing the likelihood of frequent regulatory changes, and that Congress may consider whether a more permanent solution allowing or restricting crypto activities would be preferable.
At stake is whether activities involving cryptocurrencies and digital assets qualify as part of the legally recognized "business of banking" and whether they can be conducted without jeopardizing bank safety and soundness. Because bank losses may ultimately implicate federal deposit insurance or Federal Reserve discount-window access, the report notes that the federal safety net creates moral hazard, with risks not fully borne by banks or their creditors.
The Big Picture
The report identifies three broad paths for Congress: continue deferring to regulators, legislate specific permissions or prohibitions, or combine both approaches.
Congress has never comprehensively defined "the business of banking," leaving federal regulators discretion to determine which novel activities qualify, though lawmakers have named some permissible activities explicitly in statute. Regulators apply a two-prong test, asking whether an activity is related to the business of banking and whether it poses safety and soundness risks. The report says there is disagreement on whether crypto meets either prong.
Crypto-specific concerns include pseudonymity, which poses challenges for anti-money-laundering compliance, and markets that are volatile and involve speculation on price movements. Loans collateralized by crypto assets would expose banks to losses if prices fell, and while crypto may not pose systemic risk in isolation, broader bank exposure to crypto markets could increase systemic risk.
The GENIUS Act (P.L. 119-27) already made stablecoin issuance, custody, and related activities permissible for subsidiaries of banks. The two versions of the CLARITY Act (H.R. 3633) now before Congress take materially different approaches. The House-passed version would allow banks to use digital assets or blockchain for any activity otherwise permitted by law, adding certain crypto activities for financial holding companies and bank subsidiaries. The Senate-reported version would add 11 categories of crypto activities permissible for all banking organizations and credit unions and would allow banks to underwrite and deal in digital assets, going beyond what is currently permitted in analogous traditional markets.
The Bottom Line
Whether any administration seeks to expand or constrain bank participation in crypto, the report suggests the regulatory baseline remains vulnerable to reversal unless Congress acts, and that a permissive stance would raise questions about capital, liquidity, anti-money-laundering compliance, and exposure to crypto-market volatility.
The report also raises a longer-term structural question: given the expanding list of permissible bank activities and the growth of nonbank financial firms, whether the legal distinction between banks and nonbanks remains a useful one, a question that any future expansion of crypto permissions could push further into focus.
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