FDIC Eases Crypto Regulations: US Banks May Use Public Blockchain

The Federal Deposit Insurance Corporation (FDIC) is developing a more flexible and transparent framework for banks participating in encryption asset activities, including the use of public permissionless Blockchains.

Recently, FDIC Acting Chairman Travis Hill elaborated on the agency's evolving stance on cryptocurrency-related activities at a banking industry summit.

A key area under review by the FDIC involves the interaction between regulated banks and public permissionless Blockchains. Hill acknowledged that while other countries have allowed banks to use public chains for years, U.S. regulators have taken a more cautious approach. Now, the FDIC believes that a complete ban on the use of public Blockchains is too strict, but emphasizes the need for appropriate safeguards.

The agency is evaluating existing guidelines to establish long-term standards for the responsible use of public networks. At the same time, it is also considering whether public Blockchains can operate in a permissioned model. Hill stated that regulators must assess how to define and regulate Blockchain configurations that blur the lines between open and permissioned environments.

The FDIC plans to issue more guidance on specific use cases for digital assets. Hill stated that the agency will continue to assess issues related to the scope of encryption-related activities, regulatory treatment of blockchain-based products, and expectations for bank risk management. The overall goal is to establish a consistent and transparent regulatory framework that promotes innovation while ensuring compliance with safety and soundness standards.

Hill recently pointed out that the FDIC's revised guidelines represent a fundamental shift in how the U.S. banking system treats encryption assets and Blockchain technology. The agency has rescinded the previous requirement for regulated institutions to notify the FDIC before engaging in digital asset and Blockchain activities.

In terms of stablecoin regulation, the FDIC is reviewing potential updates to deposit insurance regulations to clarify the eligibility requirements for stablecoin reserve deposits. Key issues being evaluated include liquidity risk management, measures to prevent illicit finance, and cybersecurity standards.

The FDIC is also considering whether to further clarify the boundaries of activities allowed in this area or to expand regulatory guidance to cover more use cases.

Regarding the risks of tokenized deposits and smart contracts, Hill emphasized the need for clearer regulatory treatment of tokenized real-world assets and liabilities. The FDIC believes that "regardless of the technology or record-keeping method used, a deposit is a deposit." However, he expressed concerns about whether counterparties can use smart contracts to withdraw funds at face value after a bank failure, which could increase settlement costs.

The FDIC is evaluating technological solutions to prevent unexpected outflows of funds in bank resolution scenarios. Hill pointed out that the challenge lies in aligning on-chain programmability with traditional regulatory safeguards to ensure an orderly liquidation of failing institutions.

These changes indicate that the FDIC is moving towards providing regulatory clarity for banks exploring digital asset infrastructure, while emphasizing the need for prudent risk controls and further clarifying the activities permitted.