Fed Eases Crypto Guidance, But Warns Stablecoins Pose Risks to Bank Deposits and Lending

The Federal Reserve has rolled back previous requirements for banks to seek special approval before engaging in cryptocurrency and stablecoin activities, signaling a more open stance toward institutional crypto adoption. This regulatory easing may encourage more US banks and financial institutions to offer crypto services. However, concerns remain over the rapid growth of stablecoins, particularly those issued by non-banks. The Fed’s Community Depository Institutions Advisory Council (CDIAC) warned that widespread stablecoin use could accelerate deposit outflows from banks, undermining the ability of small banks to lend to local businesses and households. The committee compared these risks to those posed by past money market fund growth and cautioned that stablecoins face less liquidity oversight than traditional banks, which could force community banks to cut lending. Calls are growing for a unified regulatory framework to prevent regulatory gaps between banks and crypto issuers. Meanwhile, the launch of Circle’s global payment system using USDC and other regulated stablecoins highlights stablecoins’ increasing role in cross-border payments and trading. The overall shift points to regulatory tightening for stablecoins, which may impact stablecoin projects, DeFi, and the broader crypto ecosystem. While institutional crypto adoption is likely to grow, the regulatory focus may introduce new compliance hurdles, especially for stablecoin operators. The immediate impact on traditional crypto traders could be muted, but evolving regulations will shape market opportunities and risks.