New Federal Reserve Guidelines Could Let Traditional Banks Perform Crypto Functions

BY Benzinga | ECONOMIC | 08/16/22 11:26 AM EDT

Traditional financial institutions could soon be allowed to offer Bitcoin (CRYPTO: BTC) and other crypto services in addition to regular banking functions.

What Happened: A new set of formal guidelines released by the Federal Reserve could see crypto banks and traditional banks performing similar functions, without having to classify itself as one or the other.

Under the guidelines, the U.S. central bank would let special purpose depository institutions (SPDI) like Wyoming-based Custodia and Kraken open "master accounts," without the need for intermediary financial institutions.

See Also: In A First, Cryptocurrency Exchange Gets US Banking Charter

It noted that that firms offering "new types of financial products" or "novel charters" have grown in recent years and would now have access to these accounts offering by Federal Reserve banks.

What's Next: The guidance will create a multi-tiered system that will allow for the Fed to evaluate whether a firm should have access based on whether it falls under the Tier 1, Tier 2 or Tier 3 categories.

Crypto firms would largely fall under the Tier 3 category and may be subject to a regulatory framework that is "substantially different" from  the one that applies to federally insured ones. They will be subject to the strictest level of review, the guidance stated.

"The new guidelines provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services in order to support a safe, inclusive, and innovative payment system," said Vice Chair Lael Brainard in a statement.

See Also: Is Bitcoin A Good Investment?

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.