The 2025 Regulatory Revolution

Date: January 23, 2025

What It Did:
President Trump signed Executive Order 14178, "Strengthening American Leadership in Digital Financial Technology." Key provisions:

Why It Mattered:
The Executive Order provided political cover for regulatory agencies to change course. Agency heads serve at the President's pleasure. An Executive Order explicitly directing pro-crypto policy signaled that the prior administration's approach was over.

Acting Comptroller Rodney Hood:
Appointed as Acting Comptroller of the Currency in January 2025, replacing Michael Hsu (who had implemented IL 1179). Hood signaled immediate intent to reconsider crypto policy.

Acting FDIC Chairman Travis Hill:
Became Acting Chairman in January 2025. Had been publicly critical of the FDIC's crypto approach. Immediately announced policy review.

Fed Chair Powell Remained:
Jerome Powell, Fed Chair, was not replaced but faced pressure from administration and Congress to moderate Fed crypto skepticism.

What It Did:
IL 1183 was the cornerstone of the regulatory reversal. It:

1. Rescinded IL 1179 (the 2021 prior-approval requirement)
2. Reaffirmed that the following activities are permissible without prior approval:
3. Adopted technology-neutral posture: Crypto activities should be treated like other bank activities, not subjected to special restrictions

Acting Comptroller Hood's Statement:

"Today's action will reduce the burden on banks to engage in crypto-related activities and ensure that these bank activities are treated consistently by the OCC, regardless of the underlying technology. I will continue to work diligently to ensure regulations are effective and not excessive."

• National banks no longer needed to seek OCC approval before crypto custody
• Banks with approved risk management could proceed
• Existing crypto programs could expand
• New crypto initiatives could launch with normal supervisory process

What It Did:
IL 1184 clarified and expanded crypto permissions:

1. Custody Execution Services Confirmed

2. Third-Party Outsourcing Permitted

3. Integration with Existing Custody

Why This Mattered:
IL 1183 confirmed custody was permissible. IL 1184 confirmed the services around custody were also permissible. Banks could offer execution, use sub-custodians, and integrate crypto into existing client relationships.

What It Did:
The OCC conditionally approved a de novo national bank charter for Erebor Bank, a new bank specifically focused on technology companies and ultra-high-net-worth individuals using virtual currencies.

Comptroller Gould's Statement:

"This application demonstrates that the OCC does not impose blanket barriers to banks that want to engage in digital asset activities. Permissible digital asset activities, like any other legally permissible banking activity, have a place in the federal banking system if conducted in a safe and sound manner."

What It Did:
IL 1186 addressed a specific operational question: Can banks hold crypto to pay network fees?

Why This Mattered:
Banks engaging with blockchain need to pay transaction fees. IL 1186 confirmed they can hold the crypto necessary to do so—a practical requirement for blockchain engagement.

By November 2025, the OCC had established:

OCC CRYPTO PERMISSIONS (NOVEMBER 2025)

Activity                           | Permission Status | Source
-----------------------------------|-------------------|--------
Crypto custody for clients         | Permitted         | IL 1170, 1183
Stablecoin reserve holding         | Permitted         | IL 1172, 1183
Blockchain node operation          | Permitted         | IL 1174, 1183
Execution at customer direction    | Permitted         | IL 1184
Sub-custody arrangements           | Permitted         | IL 1184
Third-party outsourcing            | Permitted         | IL 1184
Holding crypto for network fees    | Permitted         | IL 1186
Platform testing                   | Permitted         | IL 1186
New crypto-focused bank charters   | Available         | Erebor approval

- Proprietary crypto trading
- Crypto lending to customers
- Crypto-backed loan products

---

What It Did:
The Federal Reserve Board announced withdrawal of:

1. SR 22-6 (August 2022)

2. SR 23-8 (August 2023)

3. Joint Interagency Statements (with FDIC)

Fed Statement:

"The Board will work with the FDIC and OCC to determine whether additional guidance is appropriate."

• State member banks and bank holding companies freed from notification requirements
• Fed-supervised institutions could pursue crypto on same basis as other activities
• Signaled Fed alignment with OCC and FDIC reversal

Fed Master Accounts:
The Fed has NOT changed its cautious approach to master account applications from crypto-related companies:

Key Difference:
The Fed has eased restrictions on existing banks doing crypto. It has NOT opened direct Fed access to crypto companies seeking banking status.

What It Did:
As detailed in Lesson 4, the FDIC released 175 documents showing its prior restrictive approach. Acting Chairman Hill acknowledged the agency had made crypto "extraordinarily difficult—if not impossible."

What It Did:
Financial Institution Letter 7-2025:

1. Rescinded FIL-16-2022 (the 2022 notification requirement)
2. Affirmed that FDIC-supervised institutions may engage in permissible crypto activities without prior FDIC approval
3. Listed permissible activities consistent with OCC guidance:
4. Required continued safety and soundness

Acting Chairman Hill's Statement:

"This FIL affirms that FDIC-supervised institutions may engage in permissible activities, including activities involving new and emerging technologies such as crypto-assets and digital assets, provided that they adequately manage the associated risks."

• ~4,500 state nonmember banks freed from notification burden
• Crypto activities treated like other activities
• Banks can proceed with normal supervisory engagement

What It Did:
The FDIC, together with the Fed, withdrew from the January 2023 and February 2023 interagency statements on crypto-asset risks.

Statement:

"This action is intended to provide clarity that banking organizations may engage in permissible crypto-asset activities and provide products and services to persons and firms engaged in crypto-asset related activities, consistent with safety and soundness and applicable laws and regulations."

The Guiding and Establishing National Innovation for U.S. Stablecoins Act

Passed: Senate 68-30 (June 17, 2025), House 308-122 (July 17, 2025)
Signed: July 18, 2025

What It Did:
Created first comprehensive federal framework for stablecoin regulation:

1. Defined "Payment Stablecoin"

2. Established Issuer Categories

3. Reserve Requirements

4. Regulatory Carveouts

5. Bank-Specific Provisions

What It Did:
OCC, Fed, and FDIC jointly issued guidance on crypto custody:

1. Distinguished "Safekeeping" from "Custody"

2. Clarified Existing Requirements Apply

3. Confirmed Banks Can Store Cryptographic Keys

Why It Mattered:
This was the first constructive joint statement on crypto—replacing the 2023 cautionary statements. The tone shifted from warning to guidance.

Based on the 2025 regulatory actions, here's the current state:

BANK CRYPTO PERMISSION STATUS (NOVEMBER 2025)

CLEARLY PERMISSIBLE:
✓ Custody of crypto assets for clients
✓ Sub-custody through third parties
✓ Execution services at customer direction
✓ Holding stablecoin reserves
✓ Operating blockchain/DLT nodes
✓ Holding crypto for network fees
✓ Platform testing with crypto
✓ Issuing stablecoins through subsidiaries (GENIUS Act)
✓ Custodying stablecoin reserves

PERMISSIBLE WITH CONDITIONS:
~ New bank charters for crypto focus (case-by-case)
~ Fed master account access (pending applications)
~ State-specific activities (varies by state)

NOT PERMISSIBLE/NOT ADDRESSED:
✗ Proprietary crypto trading for speculation
✗ Crypto lending products (unclear)
✗ Crypto-backed loans (unclear)
✗ Direct XRP holdings as treasury asset (capital prohibitive)

REGULATORY DURABILITY SCENARIOS (2025-2028)

The 2025 regulatory transformation is comprehensive and significant. Banks now have clear permission for crypto custody and related services. The GENIUS Act provides statutory foundation for stablecoins. The environment has shifted from hostile to constructive. However, some activities remain unclear, capital constraints persist, and regulatory durability across political cycles isn't guaranteed. Understanding exactly what changed—and what could change again—is essential for realistic investment analysis.

Assignment: Create a comprehensive timeline and impact analysis of the 2025 regulatory transformation, suitable for use as a reference document throughout this course and for ongoing investment monitoring.

Requirements:

Part 1: Visual Timeline (One Page)

• Each major regulatory action (date, agency, action name)
• Brief description of what changed
• Cumulative effect at each point

Make this visually clear and suitable for quick reference.

Part 2: Detailed Impact Analysis (400-500 words)

• What specifically changed
• Who is affected
• What activities are now possible that weren't before
• Any remaining limitations

Part 3: Bank Response Tracking (200-300 words)

• Bank name
• What they announced/did
• Timing relative to regulatory change
• Significance

Part 4: Durability Assessment (200-250 words)

• Which changes are most durable (statutory vs. regulatory)

• What scenarios could reverse changes

• How investors should weight regulatory risk

• Accuracy and completeness of timeline (30%)

• Quality of impact analysis (30%)

• Bank response documentation (20%)

• Durability assessment reasoning (20%)

Time investment: 2-3 hours
Value: Creates essential reference document for ongoing monitoring and analysis

1. OCC Transformation (Tests Sequential Knowledge):

Which OCC Interpretive Letter rescinded the 2021 prior-approval requirement for crypto activities?

A) IL 1170 (July 2020)
B) IL 1179 (November 2021)
C) IL 1183 (March 2025)
D) IL 1186 (November 2025)

Correct Answer: C

Explanation: IL 1183, issued March 7, 2025, specifically rescinded IL 1179 (the November 2021 letter that had imposed the prior-approval requirement). IL 1170 was the original 2020 letter confirming custody was permissible. IL 1179 was the restrictive letter being rescinded. IL 1186 addressed network fees and testing—a later expansion, not the rescission. Understanding which letter did what is essential for tracking the regulatory evolution.

2. Fed Limitations (Tests Nuance):

What aspect of the 2021-2024 restrictive approach has the Federal Reserve NOT changed?

A) Notification requirements for state member banks
B) Non-objection requirements for stablecoin activities
C) Cautious approach to master account applications for crypto companies
D) Joint risk statements with OCC and FDIC

Correct Answer: C

Explanation: The Fed withdrew SR 22-6 (notification requirement, option A), withdrew SR 23-8 (stablecoin non-objection, option B), and participated in withdrawing the joint risk statements (option D). However, the Fed has NOT changed its cautious approach to master account applications—Custodia's application was denied, and Ripple's remains pending. This distinction is critical for companies like Ripple seeking direct Fed access.

3. GENIUS Act (Tests Understanding):

What legal protection does the GENIUS Act provide that regulatory guidance does not?

A) Protection from all future cryptocurrency regulation
B) Guaranteed approval for any stablecoin issuer
C) Statutory foundation that requires Congressional action to change, unlike regulatory guidance that can be reversed by agencies
D) Complete exemption from banking safety and soundness requirements

Correct Answer: C

Explanation: The GENIUS Act is legislation—it was passed by Congress and signed into law. Changing it requires new legislation, which is procedurally difficult. Regulatory guidance (like OCC interpretive letters) can be changed by agencies without Congressional action. This makes GENIUS Act provisions more durable than agency guidance. Options A, B, and D overstate what the Act does—it doesn't exempt issuers from regulation, guarantee approval, or eliminate safety requirements.

4. Permission Scope (Tests Application):

Based on the 2025 regulatory changes, which activity is a bank MOST CLEARLY permitted to undertake?

A) Proprietary trading of Bitcoin for profit
B) Making loans collateralized by cryptocurrency
C) Custodying crypto assets for institutional clients
D) Using XRP as treasury working capital

Correct Answer: C

Explanation: Crypto custody for clients is explicitly addressed in IL 1170, reconfirmed in IL 1183, and expanded in IL 1184—it's the most clearly permissible activity. Proprietary trading (A) isn't addressed and would face capital issues. Crypto-collateralized lending (B) isn't explicitly addressed. Using XRP as treasury (D) would require holding XRP as principal, facing Basel capital charges. When advising banks, distinguish between clearly permissible (custody), potentially permissible (lending), and economically impractical (principal positions).

5. Durability Assessment (Tests Analysis):

Which factor provides the STRONGEST support for durability of the 2025 regulatory changes?

A) The current administration's support for crypto
B) The GENIUS Act's statutory foundation requiring Congressional action to change
C) Industry lobbying power
D) Public opinion polls supporting crypto

Correct Answer: B

Explanation: Statutory law (GENIUS Act) is harder to change than regulatory guidance or executive orders. Changing legislation requires both houses of Congress and presidential signature—a high bar. Administration support (A) can change with elections. Industry lobbying (C) and public opinion (D) influence but don't determine policy. The GENIUS Act framework for stablecoins has the strongest legal foundation. Note that other aspects of the 2025 changes (OCC interpretive letters) rest on less durable foundations.

For Next Lesson:
Lesson 6 will examine the Fed master account question in depth—what master accounts provide, who qualifies, why the Fed has been resistant to crypto companies, and what Ripple's application means for XRP.

End of Lesson 5

Total words: ~5,600
Estimated completion time: 55 minutes reading + 2-3 hours for deliverable