Banks Get Relief: US Regulators Officially De-escalate Crypto Risk Oversight
The financial landscape for digital assets in the United States has undergone a significant shift. The Financial Stability Oversight Council (FSOC) has removed digital assets from its list of financial system vulnerabilities in its 2025 annual report, marking a dramatic reversal from the high-alert posture maintained over the past three years. This move signals a substantial easing of regulatory scrutiny, offering banks and financial institutions greater clarity and operational flexibility in the crypto space. This article delves into the details of this policy change, its implications for Bitcoin and the broader crypto market, and the factors driving this de-escalation.
From Systemic Threat to Monitored Development
For years, US regulators viewed crypto as a potential contagion channel, demanding new legislation and cautious bank supervision. The word “vulnerability” has completely disappeared from the FSOC’s table of contents. Digital assets are now categorized as “significant market developments to monitor,” described not as systemic threats, but as a growing sector attracting increasing institutional participation through products like spot Bitcoin and Ethereum ETFs and the tokenization of traditional assets. This isn’t a cosmetic change; it represents a fundamental restructuring of how US regulators perceive and approach the digital asset ecosystem.
The FSOC’s 2022 report, prompted by President Biden’s Executive Order 14067, explicitly stated that “crypto-asset activities could pose risks to the stability of the US financial system,” calling for new legislation on spot markets and stablecoins. The 2024 report continued to classify digital assets as vulnerabilities, specifically warning that dollar stablecoins were “acutely vulnerable to runs” without bank-like prudential standards. The 2025 report decisively reverses this framing, acknowledging that US regulators have “withdrawn previous broad warnings” regarding crypto involvement and suggesting that the growth of dollar stablecoins will likely support the dollar’s international role in the coming decade.
A Coordinated Policy Shift: Beyond the FSOC Report
This change in stance isn’t isolated to the FSOC report. Three key developments confirm a coordinated, agency-wide reversal in policy:
The White House Pivot
President Trump’s Executive Order 14178 revoked Biden’s crypto EO, explicitly stating a policy “to support the responsible growth and use of digital assets” and banning a US central bank digital currency (CBDC). The subsequent Digital Assets Report reads like an industrial policy, prioritizing tokenization, stablecoins, and US leadership in the space, rather than containment.
Congressional Action: The GENIUS Act
Congress delivered the regulatory framework the FSOC had previously demanded with the passage of the GENIUS Act in July 2025. This act creates “permitted payment stablecoin issuers,” mandates 100% backing, and grants primary oversight to the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and state regulators. This provides the FSOC with justification to cease treating stablecoins as unregulated systemic threats and instead monitor them as supervised dollar infrastructure with specific risks related to runs and illicit finance.
Bank Re-engagement: SEC and OCC Guidance
Regulatory hurdles for banks entering the crypto space are being lowered. In January 2025, the Securities and Exchange Commission (SEC) rescinded SAB 121 via SAB 122, removing guidance that required banks to record custodial crypto assets as liabilities on their balance sheets. The OCC issued Interpretive Letter 1188, allowing national banks to act as intermediaries in “riskless principal” crypto transactions, facilitating buying and selling without taking on open positions. Further guidance from the OCC permits banks to hold small amounts of native tokens to cover gas fees for custody or stablecoin operations. Notably, the OCC has also granted preliminary national trust bank charters to Circle, Ripple, BitGo, Paxos, and Fidelity Digital Assets, enabling them to operate as federally supervised trust banks.
FSOC’s Statutory Role and the Signal Sent
The FSOC’s statutory role reinforces the significance of this timing. Congressional Research Service guidance stipulates that each council member must attest that “all reasonable steps to address systemic risk are being taken” or explain what further action is needed in the annual report. The fact that the 2025 report no longer identifies digital assets as a vulnerability, coinciding with the rescission of SAB 121, the enactment of the GENIUS Act, and the OCC’s opening to crypto-native banks, signals a coordinated de-escalation, not merely isolated messaging.
A Look Back: FSOC’s Evolving Classification of Crypto
Here’s a table summarizing the FSOC’s classification of crypto assets over the past few years:
| Year | How FSOC classified crypto / digital assets | Key language / tone | Main source |
|---|---|---|---|
| 2022 | Explicit financial-stability risk & “priority area” | FSOC’s 2022 Annual Report says it “identified digital assets as a priority area” and points to the separate “Report on Digital Asset Financial Stability Risks and Regulation,” which lays out “potential vulnerabilities to the financial system” from crypto and recommends new authorities for spot markets and stablecoins. | 2022 Annual Report |
| 2023 | Listed as a named “financial stability vulnerability” | Treasury’s release on the 2023 Annual Report says: “Digital Assets: The Council notes that financial stability vulnerabilities may arise from crypto-asset price volatility, the market’s high use of leverage, the level of interconnectedness within the industry, operational risks, and the risk of runs on crypto-asset platforms and stablecoins,” also citing token-concentration and cyber risk. | 2023 Annual Report |
| 2024 | Still a risk to monitor; stablecoins flagged as potential systemic risk | In the 2024 Annual Report release, FSOC writes: “Digital Assets: The Council continues to monitor risks related to crypto assets. Though the market value of the crypto-asset ecosystem remains small compared with traditional financial markets, it has continued to grow. Absent appropriate risk-management standards, stablecoins represent a potential risk to financial stability because of their vulnerability to runs.” | 2024 Annual Report |
| 2025 | No longer listed as a “vulnerability”; neutral/monitoring tone | The 2025 Annual Report drops the “vulnerabilities” section entirely. Coverage notes that digital assets are no longer described as a hazard area; instead the report “does not offer recommendations regarding digital assets nor express explicit concerns,” and mainly recounts how regulators have withdrawn broad crypto warnings, while only flagging stablecoins in an illicit-finance subsection. Bessent’s letter reframes FSOC’s mission around growth rather than risk-spotting. | 2025 Annual Report |
Remaining Cautions: Global Perspectives and Ongoing Risks
While the US is de-escalating its stance, global watchdogs haven’t followed suit. The Financial Stability Board’s (FSB) October 2025 review noted that crypto’s global market cap had roughly doubled to $4 trillion and warned of “significant gaps” and “fragmented, inconsistent” implementation of its 2023 crypto standards. The FSB judges financial stability risks as “limited at present” but rising with increased interconnection and stablecoin usage.
The Financial Action Task Force’s (FATF) June 2025 update revealed that only 40 of 138 jurisdictions are “largely compliant” with its crypto anti-money laundering (AML) rules, pointing to tens of billions in illicit flows. FATF argues that failures in one jurisdiction create global consequences. Even the FSOC’s 2025 report acknowledges that dollar stablecoins can be exploited for sanctions evasion and illicit finance, calling for continued monitoring and enforcement.
The de-escalation applies to systemic-risk framing, not to AML or sanctions compliance.
Implications for Bitcoin in 2026
The FSOC’s decision to drop “vulnerability” language removes the macroprudential stigma that previously deterred large banks, insurers, and pension funds from crypto exposure beyond indirect holdings. It doesn’t mandate Bitcoin allocations, but it reduces the likelihood of new systemically important financial institution (SIFI) rules or restrictive supervisory guidance that could stifle ETF, custody, or lending channels in the name of systemic risk.
The SEC’s approval of spot Bitcoin and Ethereum ETFs in 2024, coupled with the influx of additional crypto ETF filings in 2025, has normalized listed exposure to BTC at an institutional scale. FSOC’s new tone treats these ETFs as a market structure to monitor, rather than a contagion channel requiring caps.
The GENIUS Act and the OCC’s riskless-principal guidance provide US-regulated banks with a clearer legal path to operate in the plumbing layer: holding stablecoin reserves, intermediating flows between BTC ETFs and stablecoin rails, and tokenizing collateral. This infrastructure is the key to scaling Bitcoin’s macro-asset role in 2026, not because the FSOC endorses BTC, but because systemic-risk concerns are being replaced by standard prudential and AML oversight.
However, this policy shift doesn’t immunize Bitcoin from political volatility. Congress could revisit market-structure rules, and the SEC and CFTC continue to dispute jurisdiction over tokens other than Bitcoin or Ethereum. Global regulators warn that crypto-traditional linkages may pose genuine stability issues if the market continues to double in size. FATF and FSB reports suggest that international coordination on AML and cross-border flows will tighten regardless of the US de-escalation of systemic risk.
The risk for Bitcoin in 2026 has shifted from outright prohibition to policy whiplash. FSOC’s reversal opens institutional channels just as election-year politics could disrupt them. The council’s willingness to downgrade crypto from “vulnerability” to “development” reflects confidence that existing supervisory tools can handle current exposures. That confidence will hold as long as spot ETF flows remain orderly, stablecoin issuers maintain full backing, and no major custody or bridge failure forces regulators to revisit whether crypto’s integration into traditional finance has outpaced oversight capacity.
Bitcoin enters 2026 with a regulatory permission structure in place. The test now is whether that structure survives the next stress event or whether FSOC’s “significant development to monitor” language proves to be a placeholder that reverts to “vulnerability” the moment something breaks.