State Banks’ Crypto Plans Face Hurdles After New Fed Policy

The Federal Reserve is sending a clearer message to state banks on crypto — Go easy.

State banks under its oversight should limit their crypto involvement largely to custody services, and avoid issuing asset-pegged stablecoins or holding crypto as principal, the Fed said in its Jan. 27 policy statement. Bank of New York Mellon Corp. already offers crypto safekeeping for institutional clients, and State Street Corp. is planning to offer similar custody services.

Given the crypto market meltdown, the policy seems like an inevitable follow-through. But the central bank’s moves highlight the Biden administration’s increased skepticism and concerns about some ...