Congress Proposes Rules for Banks' Crypto Activities Amid Regulatory Uncertainty

U.S. lawmakers are proposing rules to govern banks' cryptocurrency activities, seeking to establish stable regulations and reduce the risk of frequent regulatory changes. Since 2017, federal regulators have repeatedly altered their approach, sometimes permitting banks to engage with crypto assets and at other times restricting such activities.

The main contentious issue is whether cryptocurrency and digital asset activities constitute 'banking business' and whether they can be conducted without jeopardizing the stability of banks. Regulators use a dual criterion to assess whether the new activity is related to the banking business and whether it poses risks to financial stability.

Concerns include the pseudonymous nature of cryptocurrencies, which complicates efforts to combat money laundering, and the high volatility of crypto markets. If a bank extends loans collateralized by crypto assets, a sharp price decline could lead to significant losses.

The Congressional Research Service (CRS) proposes three regulatory approaches for banks dealing with crypto assets: leave the decision to regulatory agencies, create a law defining permitted crypto operations, or combine both approaches.

Two versions of the CLARITY bill are under consideration in Congress, with significant differences between the House and Senate versions.