Federal Reserve Chair Jerome Powell has signaled a significant shift in the regulatory stance toward cryptocurrency, stating that traditional banks are "well equipped to serve crypto-related clients." This endorsement suggests that digital assets are moving from the financial fringe toward the core of the financial system, reinforcing growing institutional confidence in Bitcoin and the broader sector.
Powell's remarks highlight a move toward controlled integration rather than resistance, acknowledging that banks already operate within strict regulatory frameworks with strong compliance systems and risk controls. He believes these institutions can apply similar discipline when offering crypto banking services, positioning them as gateways that could reduce operational barriers for large institutional investors seeking custody solutions and regulated market access.
Concurrently, Washington is preparing a major policy pivot that would ease capital and liquidity requirements for large U.S. banks. Federal Reserve Vice Chair for Supervision Michelle Bowman announced on March 12 that regulators are preparing a softer rewrite of the Basel III endgame rules. The new version could leave large-bank capital requirements roughly flat or slightly lower and potentially free up more than $175 billion in excess capital across the industry, with surcharges for the largest global banks possibly falling by about 10%.
This represents a sharp turn from the 2023 draft proposal under former Vice Chair Michael Barr, which would have raised capital requirements at the biggest banks by about 19%. The revised approach, argued by supporters like Bowman, aims to reduce economic costs and avoid interfering with banks' basic job of supplying credit.
A second critical piece involves liquidity rules. Treasury officials are reconsidering regulations and have floated an idea to give banks regulatory credit for collateral already prepositioned at the Federal Reserve's discount window. This means banks may need to carry less "dead weight" if they can show assets lined up for quick conversion to cash, effectively redesigning the system around a more direct role for the central bank backstop.
The contrast in regulatory treatment is striking: while large banks may gain more flexibility, direct crypto exposure on bank balance sheets continues to face harsher treatment. Basel's thresholds and punitive risk weights can make direct Bitcoin exposure prohibitively expensive, suggesting regulators remain more comfortable backstopping traditional balance-sheet risk than normalizing crypto assets on bank books.
This policy shift occurs against the backdrop of the 2023 regional bank failures (Silicon Valley Bank, Signature Bank, First Republic) and warnings from figures like Senator Elizabeth Warren against weakening capital standards while geopolitical and credit risks are climbing. The rewrite accepts more system vulnerability in exchange for more lending, market activity, and less drag on profitability, acknowledging the financial system's continued dependence on central-bank rescue architecture.
