A Congressional Research Service report circulated this week lays out three legislative paths for defining whether banks may engage in cryptocurrency and digital-asset activities, as the House- and Senate-passed versions of the CLARITY Act diverge on what banks, credit unions, and their holding companies would be allowed to do on-chain.

The CRS analysis, published as report IF13324, frames the policy question around whether crypto activities qualify as the legally recognized "business of banking" and whether they can be conducted without jeopardizing bank safety and soundness. Federal banking regulators have oscillated between permissive and restrictive stances since 2017 as presidential administrations changed, the report notes, leaving the current baseline vulnerable to reversal by executive action.

What does the CRS report recommend?

The report identifies three broad options for Congress:

• Continue deferring to agencies, leaving regulators to apply the existing two-prong test on a case-by-case basis
• Enact specific statutory permissions or prohibitions for crypto activities
• Combine statutory direction with ongoing regulatory discretion

Congress has never comprehensively defined the "business of banking," and regulators apply a two-prong test asking whether an activity is connected to banking and whether it poses safety and soundness risks. The report says disagreement persists over whether crypto satisfies either prong.

What are the prudential concerns?

The CRS analysis flags four primary concerns. Pseudonymity in crypto transactions complicates anti-money-laundering compliance. Markets remain volatile and dominated by speculation on price movements. Loans collateralized by crypto expose banks to losses in downturns. And while crypto may not pose systemic risk in isolation, broader bank exposure to crypto markets could amplify it.

The report also notes that bank losses may ultimately implicate federal deposit insurance or Federal Reserve discount-window access, creating a moral hazard where risks are not fully borne by banks or their creditors.

Where do the GENIUS Act and CLARITY Act stand?

The GENIUS Act (P.L. 119-27) already made stablecoin issuance, custody, and related activities permissible for subsidiaries of banks. The CLARITY Act (H.R. 3633), now in conference, takes materially different approaches in its two versions.

The House-passed version would allow banks to use digital assets or blockchain for any activity otherwise permitted by law and would add certain crypto activities for financial holding companies and bank subsidiaries. The Senate-reported version would add 11 categories of crypto activities permissible for all banking organizations and credit unions and would allow banks to underwrite and deal in digital assets — going beyond what is permitted in analogous conventional markets.

What is the structural question?

The CRS report raises a longer-term issue: whether the legal line between banks and nonbanks remains a useful distinction given the expanding list of permissible bank activities and the growth of nonbank financial firms. Any expansion of crypto permissions, the report warns, would push that question further into focus.

A permissive statutory stance would also force Congress and regulators to revisit capital, liquidity, anti-money-laundering compliance, and exposure to crypto-market volatility, the report adds — issues that have only been addressed piecemeal through agency guidance and individual enforcement actions to date.

What happens next?

The CLARITY Act's two chambers must reconcile their versions before any final vote, with the 11-activity Senate list and the broader House permission serving as the central points of negotiation. Until conference produces a final text, the regulatory baseline for bank-crypto activity remains subject to agency interpretation under the current administration and vulnerable to reversal by a future one, the CRS report concludes.