Fed Declares Supervised Banks Will be Subject to Activity Limitations, Including Crypto-Asset and Other Novel Banking Activities | Troutman Pepper

The Federal Deposit Insurance Act (FDIA) generally bans banks in insured states, but member banks in uninsured states are required to pay principal for activities not authorized by the national bank. It is prohibited to act as On January 27, 2023, the Federal Reserve Board (Fed) relied on its authority under the FDIA to restrict the activities of state member banks under its supervision. Banks are subject to the same restrictions on activities, regardless of their deposit insurance status, including new banking activities such as those related to crypto assets.

The policy stipulates that the Fed will only allow state member banks (SMBs) to engage as principals in activities that are also permitted for national banks. The same conditions and limitations imposed on national banks with respect to their respective activities apply to SMBs, regardless of their deposit insurance status. However, SMBs can seek regulatory treatment deviations from the Fed by presenting a clear and compelling rationale for the deviation and demonstrating a robust risk management plan for the proposed activity.

Furthermore, if the Office of the Comptroller of the Currency (OCC) imposes restrictions or conditions on the activities of national banks, those restrictions apply to small and medium enterprises as well. For example, if the OCC requires a national bank to receive a written challenge from the OCC supervisory staff before engaging in any activity, the SMB will receive a written challenge from the Fed supervisory staff before engaging in the same activity. Objections must be accepted.

In either case, the SMB must operate in line with measures to ensure safety and integrity and maintain internal controls and systems appropriate to the bank’s activities. With respect to new activities such as crypto-assets and distributed ledger technology, the policy specifically requires that SMBs “have adequate systems in place to monitor and control risks such as liquidity, credit, market, operational and compliance.” important.” risks” and “the ability to describe and demonstrate an effective control environment associated with such activities”.

Finally, the policy prohibits SMBs from holding most crypto assets as principal, and the Fed requires that SMBs be allowed to participate as principal in activities that are conditionally permitted to state-owned banks. expects to receive a supervisory no objection from a Fed supervisor. Issuance of dollar tokens/stablecoins, etc. Policy statements become effective upon publication in the Federal Register.

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