FRB Ends Novel Activities Supervision Program
Commentary by Gage Raju-Salicki and Sebastian Souchet
The Federal Reserve ended its Novel Activities Supervision Program, which focused on "certain crypto and fintech activities in banks." The Board said it will "return to monitoring banks' novel activities through the normal supervisory process."
According to the release, the Board rescinded the 2023 supervisory letter that created the program.
Commentary
The withdrawal of this program suggests more crypto normalization across the banking and financial sectors. Given the recent passage of the GENIUS Act and with market structure reform on the horizon, scrapping this program suggests that crypto is well underway to becoming a key component of the banking sector.
Further, this movement stems from a number of President Trump’s recent executive orders, including his most recent one on politicized and unlawful debanking, particularly its focus on ending "Operation Chokepoint 2.0." Expect more regulatory easing to come for crypto.
Commentary
There is a strong case to be made that the Novel Activities Supervision Program was a form of regulatory and supervisory tailoring, particularly in light of contemporary determinations by both legislators and financial regulators that crypto activities and related financial risks are sufficiently unique such that they require new legal authority and distinct market structuring (see, e.g., the GENIUS Act and proposed market structure legislation). Given FRB Vice Chair for Supervision Bowman's consistent emphasis on tailoring as a "strong foundational principle upon which to apply bank regulation and supervision," query the policy rationale motivating the FRB's sunset of the Novel Activities Supervision Program.
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The Federal Reserve Board provided guidance to banking organizations on (i) supervision over "novel activities" and (ii) the process for state member banks to follow before engaging with dollar token or stablecoin activity.