Federal Reserve Adopts 2025 Policy Statement on Permissible Novel Activities for State Member Banks

The Fed published a final rule rescinding and replacing its 2023 Policy Statement interpreting section 9(13) of the Federal Reserve Act, setting forth a new policy statement that removes a rebuttable presumption against novel activities and treats innovation as a risk-management question rather than a supervisory problem. The policy change is consistent with the Fed's previous rescission of other digital asset-related guidance issued during the Biden Administration. The 2025 Policy Statement opens a credible, reviewable path for state member banks, including uninsured banks, to engage in non-traditional activities without being presumptively constrained by national bank powers. The 2025 Policy Statement should also help state-chartered banks compete, coexist, and even affiliate with the national trust banks engaged in expanded digital asset and related activities.

Key Takeaways

• No presumption against novel activities. The 2025 Policy Statement removes the rebuttable presumption in the 2023 Policy Statement that a state member bank could not engage in activities as principal unless those activities were permissible for national banks. The 2023 Policy Statement essentially curtailed the activities of state uninsured banks—including novel charter and trust companies—that provided much needed relief and space for innovation when federal charters and options were closed to them. It was part of a government-wide push to curtail digital asset innovation in the traditional banking sector.
• Risk-based parity rather than a national bank ceiling. The 2025 Policy Statement retains the principle from the 2023 Policy Statement that the same activity, presenting the same risks, should be subject to the same regulation, and adds the principle that a different activity, presenting different risks, should be subject to different regulations. Instead of treating insured and uninsured state member banks the same (they unquestionably are not), the 2025 Policy Statement provides that the Fed may permit uninsured state member banks to engage in activities that are impermissible for insured state member banks, based on risk to the bank and the U.S. financial system.
• Concrete factors for approval. Unlike the 2023 Policy Statement, the 2025 Policy Statement articulates specific factors that the Fed may consider when deciding whether an uninsured state member bank may engage in an activity impermissible for insured banks in a safe and sound manner and in a manner that is consistent with preserving the stability of the U.S. financial system. These factors may include a sufficient amount of total loss-absorbing capacity, liquidity coverage, and resolution planning.
• Aligns with the Fed's retreat from digital asset-specific guidance. The Fed initially issued the 2023 Policy Statement as part of a series of interpretations related to digital assets and supervisory expectations for these activities in 2022 and 2023. In rescinding the 2023 Policy Statement, the Fed noted that it had already rescinded or withdrawn most of this prior guidance. The 2025 Policy Statement lifts the Fed's thumb from the scale, allowing state member banks to engage in digital-asset activities based on risk, rather than politics related to "novel and unprecedented" activities.
• Aligns with the GENIUS Act. The GENIUS Act opened the statutory door for state member banks—through uninsured subsidiaries—to engage in digital asset activities. Even digital asset activities authorized by the GENIUS Act could have faced heightened supervisory scrutiny as "novel and unprecedented" activities under the Fed's former approach. The new 2025 Policy Statement fixes that.

Section 9(13) of the Federal Reserve Act

Under section 9(13), the Fed may—but does not have to—limit the activities of state member banks and their subsidiaries "in a manner consistent with section 24" of the Federal Reserve Act. Section 24 prohibits an insured state bank from engaging "as principal in any type of activity that is not permissible for a national bank" unless (1) the FDIC has determined that the activity would pose no significant risk to the Deposit Insurance Fund, and (2) the state bank complies with applicable capital requirements.

It is conceivable that parity between state-chartered banks and national banks may be warranted. And uninsured institutions can pose risks to insured institutions and the financial system more generally. But so can insured banks. A blanket presumption (it is not clear how often it was rebutted) seemed more of a policy preference that was not data-driven. There is no question that should macro- or micro-prudential concerns arise, the Fed may exercise its authority under section 9(13). If it does so, it should be through a robust rulemaking process supported by data and other industry input.

2023 Policy Statement

The 2023 Policy Statement created a rebuttable presumption that the Fed would exercise its discretion under section 9(13) to limit the authority of state member banks to engage as principal in activities that are permissible for national banks, subject to the terms, conditions, and limitations placed on national banks with respect to the activity, unless those activities are permissible for state-chartered banks by federal statute or FDIC regulations. The Fed noted that legal permissibility was a necessary, but not sufficient, condition to establish that a state member bank may engage in a particular activity. Thus, the 2023 Policy Statement treated insured and uninsured state member banks the same under the principle that the same activity, presenting the same risks, should be subject to the same regulation. The 2023 Policy Statement also described the Fed's supervisory expectations at that time regarding "novel and unprecedented" activities. The Fed indicated that the 2023 Policy Statement would have presumptively applied to particular sets of facts related to certain digital asset activities at the time.

2025 Policy Statement

The 2025 Policy Statement removes the rebuttable presumption and adds to the previous principle that a different activity, presenting different risks, should be subject to a different regulatory framework. Under this new, second principle, the 2025 Policy Statement sets out that uninsured state member banks may be permitted to engage in activities as principal that are impermissible for insured state member banks, provided that such activities are conducted in a safe and sound manner and in a manner that is consistent with preserving the stability of the U.S. financial system.

The Fed will still limit the authority of insured state member banks and their subsidiaries to engage in any activity as principal to those activities that are permissible for national banks, subject to the terms, conditions, and limitations placed on national banks with respect to the activity, unless those activities are permissible for insured state-chartered banks under section 24.

And if the FDIC has issued a rule that permits an insured state-chartered bank to engage in an activity as principal that is not permissible for national banks, it is generally permissible for insured state member banks to engage in that activity, provided that activity is permitted under state law.

If there is no authority for an insured state member bank to engage in a particular activity as principal under federal law or FDIC regulations, an insured state member bank must apply to the FDIC for permission to engage in the activity and comply with applicable capital requirements.

An uninsured state member bank may not engage in any activity as principal that is not authorized for national banks or insured state-chartered banks, unless the Fed has provided otherwise or the uninsured state member bank has received the Fed's consent. In determining whether to grant permission to engage in an activity that is not permissible for insured state member banks, the Fed may consider the regulatory framework governing the uninsured state member bank, the risks presented by the proposed activities and the bank's planned internal controls framework to address such risks, and how the bank would mitigate the risks otherwise addressed by deposit insurance and FDIC resolution.

Our Take

The 2025 Policy Statement is a natural extension of the work of the federal banking agencies to roll back Biden Administration guidance that was skeptical of digital asset and other novel activities. It also better aligns with the GENIUS Act. By getting rid of the rebuttable presumption in favor of a risk-based approach, the 2025 Policy Statement creates a viable way for uninsured state member banks to engage in digital asset activities, including payment stablecoins under the GENIUS Act, as well as innovate more broadly. A competitive charter landscape and robust dual banking system has been the preferred U.S. policy for some time, and these changes are consistent with it.

Max Bonici leverages over 15 years of experience to guide financial institutions and fintechs in navigating complex regulatory frameworks. Stephen Gannon offers strategic guidance on fintech and digital assets. Michael Treves adds vital depth with his enforcement experience and regulatory insight, particularly in consumer financial protection and compliance matters. For more insights, contact Max, Steve, Michael, or another member of Davis Wright Tremaine's financial services team or sign up for our alerts.