The US Federal Reserve has withdrawn a 2023 supervisory policy that restricted how Fed-supervised state member banks could engage in innovative financial activities. In its place, the central bank released a new policy statement aimed at supporting responsible innovation while maintaining safety and soundness across the banking system.
The decision, announced on 17 December 2025, marks a clear shift in tone from the Fed’s earlier, more cautious stance. It reflects a broader reassessment of how banking supervisors should approach new technologies and business models after several years of rapid change in payments, digital assets, and financial infrastructure.
A reset of the Fed’s approach to innovation
The withdrawn 2023 statement had linked the permissibility of certain activities by Fed-supervised state member banks to those explicitly allowed for national banks and institutions overseen by other federal regulators. Critics argued that the approach created unnecessary uncertainty and effectively discouraged experimentation, even where risks could be properly managed.
Under the new policy, the Federal Reserve says it will focus less on blanket restrictions and more on whether specific activities are conducted in a safe, sound, and legally compliant manner. The framework applies to both insured and uninsured state member banks supervised by the Board.
The Fed stressed that innovation itself is not inherently risky. Instead, supervisors will assess governance, risk management, controls, and compliance on a case-by-case basis, rather than discouraging new activities simply because they are novel.
Signals for digital finance and tokenisation
While the statement does not explicitly reference cryptoassets or tokenised deposits, the policy shift is likely to be closely watched by banks exploring distributed ledger technology, real-time settlement, and new payment rails.
Over the past two years, US banks have complained that supervisory ambiguity, rather than formal prohibition, has been the main barrier to innovation. The new policy appears designed to reduce that ambiguity without weakening prudential standards.
For international observers, including European policymakers working on the digital euro and other CBDC initiatives, the move highlights a contrast in regulatory philosophy. Rather than defining detailed activity-based rules upfront, the Fed is signalling a preference for supervisory judgment anchored in risk outcomes.
Bowman’s role and supervisory philosophy
Vice Chair for Supervision Michelle W. Bowman said the revised approach aims to ensure the banking system remains safe and sound while also modern, efficient, and effective. She emphasised that innovation can improve efficiency, customer service, and resilience if properly managed.
Bowman has previously argued that overly prescriptive supervision can push activity outside the regulated banking sector, potentially increasing systemic risk rather than reducing it. The new policy aligns closely with that view.
Broader implications for banks and markets
The change does not remove existing laws or regulations, and banks must still comply with capital, liquidity, consumer protection, and anti-money laundering requirements. However, it does suggest a more open supervisory dialogue for institutions seeking to test or scale new products.
For US banks competing with fintech firms and non-bank payment providers, the announcement may be seen as a modest but important recalibration. It also sends a signal internationally that US regulators are seeking to balance caution with competitiveness as financial systems evolve.
As digital money, instant payments, and tokenised assets continue to reshape finance globally, the Fed’s updated stance suggests it wants banks to play an active role rather than remain on the sidelines.