President’s Working Group Report on Digital Assets: Analysis of Banking-Related Issues and Recommendations

On July 30, 2025, the White House released a report titled “Strengthening American Leadership in Digital Financial Technology,” which outlines the Trump administration’s proposed policy roadmap on digital assets (Report). The Report was mandated by Executive Order 14178, issued on January 23, 2025, which, among other things, established the President’s Working Group on Digital Asset Markets (PWG) and required the PWG to submit a report recommending regulatory and legislative proposals to advance the growth and use of digital assets, blockchain technology, and related technologies.¹ Although the Report covers a range of topics, this Advisory focuses solely on the observations and recommendations of the PWG pertaining to the engagement by banking organizations with digital assets and market participants in the digital asset sector and the regulatory framework that should apply to such activities.²

This Advisory is part of a series by Arnold & Porter covering the evolution of the digital asset landscape in the United States. Arnold & Porter will continue to publish additional Advisories as part of this series, including to cover aspects of the Report that are not addressed by this Advisory.³

Regulatory Developments Leading Up to the Publication of the Report

The Trump administration announced a broad objective to promote the United States as a leader in digital assets and financial technology, as evidenced in Executive Order 14178, which has led to a series of actions by the Federal Reserve System (Federal Reserve), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (collectively, the Agencies) earlier in 2025 to rescind prior guidance on digital asset-related activities and issue new guidance that aligns with the administration’s policy directive on digital assets. Before we examine the PWG’s observations and recommendations relating to the banking sector and digital assets, below is a summary of key regulatory developments in 2025 leading up to the publication of the Report.⁴

• OCC Interpretive Letter 1183. On March 7, 2025, the OCC reaffirmed through the issuance of Interpretive Letter No. 1183 (IL 1183) that digital asset custody and certain distributed ledger technology and stablecoin activities are permissible for national banks. IL 1183 rescinded Interpretive Letter No. 1179, which established a supervisory non-objection process for engaging in national bank-permissible digital asset activities. In practice, this non-objection process largely stifled the digital asset-related activities of banks.
• FDIC Financial Institutions Letter 7-2025. On March 28, 2025, the FDIC issued Financial Institutions Letter 7-2025 (FIL 7-2025), which clarified that state nonmember banks may engage in certain digital asset activities without seeking the prior approval of the FDIC. FIL 7-2025 rescinded Financial Institutions Letter 16-2022, which, similar to OCC’s Interpretive Letter No. 1179, established a supervisory non-objection process for state nonmember banks seeking to engage in digital asset activities.
• Withdrawal of SR Letters 22-6 and 23-8. On April 24, 2025, the Federal Reserve announced the withdrawal of two prior guidance publications related to digital assets, SR Letter 22-6 and SR Letter 23-8. SR Letter 22-6 established a supervisory expectation that state member banks provide advance notification to the Federal Reserve staff of planned or current digital asset activities. Similarly, SR Letter 23-8 established a supervisory non-objection process for engagement by state member banks in dollar token activities.
• Withdrawal of Joint Statements. On April 24, 2025, the FDIC and the Federal Reserve withdrew two joint statements related to digital asset activities issued in 2023: the Joint Statement on Crypto-Asset Risks to Banking Organizations and the Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities. The OCC had withdrawn from the two joint statements earlier in March 2025. These joint statements identified a wide array of risks relating to digital asset activities, including fraud, market, operational, legal, and contagion risk, and established a high bar for banks’ risk management controls in relevant areas.
• OCC Interpretive Letter 1184. On May 7, 2025, the OCC issued Interpretive Letter No. 1184 (IL 1184), which clarified the authority of national banks to engage in certain digital asset custody services. IL 1184 expounds upon the OCC’s prior guidance, IL 1183, by clarifying that, as part of a bank’s provision of custody services, a bank may provide digital asset and fiat currency exchange and trade execution services. IL 1184 also provides that a national bank may provide these services in a fiduciary or non-fiduciary capacity or outsource the activities to a sub-custodian.
• Interagency Guidance on Crypto-Asset Safekeeping by Banking Organizations. On July 14, 2025, the Agencies issued a joint statement addressing risk management and legal expectations applicable to banking organizations engaging in crypto-asset safekeeping activities. The joint statement clarifies how existing laws, regulations, and risk management principles apply to digital asset safekeeping activities by banks, but does not create any new supervisory expectations. Of note, the guidance addresses the importance of developing an adequate operational capacity and corresponding internal controls in order to provide digital asset custody services in accordance with principles of safety and soundness. The guidance also highlights key areas of risk relating to digital asset safekeeping, including cryptographic key management. Consistent with the Report, the guidance indicates that banking organizations should determine whether their internal key management systems are sufficient in light of recent and ongoing technological developments.

These developments represent a significant change in the Agencies’ stance on financial institutions’ engagement in digital asset activities. The Report, while acknowledging these developments as positive and aligned with the administration’s policy directive on digital assets, calls for additional guidance and best practices by the Agencies to further clarify their regulatory and supervisory expectations related to digital asset-related activities.

PWG Recommendations on Banking and Digital Assets

The PWG’s recommendations regarding banking and digital assets consist of the following:

• Provide regulatory and supervisory clarity for banking institutions seeking to engage in various bank-permissible digital asset activities, including, among other things, custody services, holding stablecoin reserves as deposits, buying and owning digital assets as principal, tokenization of bank deposits and related activities, and using permissionless systems to engage in digital asset activities.
• Encourage banking organizations to explore innovative banking technologies and products such as digital assets, including through pilots and experiments.
• Develop guidance and best practices for engagement in technologically sound digital asset activities, including with respect to custody services, anti-money laundering and countering the financing of terrorism (AML/CFT) obligations, cyber risks particular to digital assets, and use of third parties in the provision of digital asset services.
• Clarify the role of supervisors and banks in offering banking services to potential customers, including by ensuring that existing and new best practices or guidance on risk management and bank engagement do not discriminate against digital asset businesses.
• Provide clarity and transparency regarding the process for eligible institutions to obtain a bank charter or a Reserve Bank master account and ensure eligible entities are not prohibited from obtaining bank charters, obtaining federal deposit insurance, or receiving Reserve Bank master accounts solely because they engage in digital asset activities.
• Adopt capital requirements for bank digital asset activities that accurately reflect the risk of the asset or activity and advocate that the Basel Committee on Banking Supervision revisit the digital asset standards to ensure similar treatment to U.S. capital requirements.

Key Banking-Related Issues in the Report

Products and Services

The Report discusses digital asset-related products and services offered directly or indirectly by banking institutions, including traditional banking services (i.e., deposit accounts, payments, lending), distributed ledger technology (DLT) payments, tokenization, tokenized deposits, digital asset custody, digital asset trading, and digital asset-related lending. With respect to such products and services, the Report emphasizes that the regulatory framework should not reflect a regulatory preference for a particular technology or sector, but instead allow banking institutions to determine which products and services to offer, as permitted by law or rule, based on their business strategy and risk management capabilities. Below, we discuss certain digital asset-related products and services that are notable in the Report.

Tokenized Deposits. While indicating that further clarity from the Agencies would be helpful, the Report provides that banking institutions generally are permitted to tokenize deposits. Specifically, the Report provides that whether any particular tokenized deposit meets the statutory or regulatory definitions of “deposit” under the Federal Deposit Insurance Act and Regulation D requires a fact-specific analysis.⁵ The Report also provides that tokenized deposit may raise certain questions regarding practical implementation and broader impact on the banking system, including, among other things, the reliability and security of the underlying technology, privacy of any confidential information shared when making a payment, interoperability of different ledgers, and effect on bank runs.

The Report differentiates stablecoins and tokenized bank deposits, noting that they can be used for the same general purpose but differ significantly in implementation and legal treatment. The Report characterizes a tokenized bank deposit as evidence of a bank’s deposit liability and a holder’s claim against the bank, which is supported by the bank’s balance sheet and can be eligible for federal deposit insurance. On the other hand, stablecoins represent a liability of a bank subsidiary or nonbank counterparty or a claim on reserve assets.

Digital Asset Custody. The Report indicates that banking institutions may provide custody services themselves or through sub-custodians to hold cryptographic keys or white-labeling digital asset custody platforms, emphasizing that banking institutions have long provided custody services for a wide variety of physical and electronic assets. The Report also notes that customers may seek to engage the custodian to undertake ancillary services, including staking, facilitating digital asset lending, and DLT governance services.

As noted above, on July 14, 2025, the Agencies issued a joint statement reaffirming the legal permissibility for banking institutions to engage in digital asset custody services. The joint statement clarifies how existing laws, regulations, and risk management principles apply to digital asset safekeeping activities by banking institutions. The joint statement does not create any new supervisory expectations. Nevertheless, the Report highlights the need for “competence” with digital assets when providing digital asset custody services, also citing potential cybersecurity implications, while recommending that further guidance on technical best practices would be appropriate.

Facilitating Digital Asset Trading. Banking institutions may offer digital asset trading to customers in varying forms. The Report provides that simple trading arrangements (e.g., enabling bank customers to access the third party’s digital asset trading service) may be offered through the banking organization’s “finder” authority,⁶ depending upon the facts and circumstances, including the extent of the bank’s involvement in facilitating the trading activity. Other types of arrangements related to digital asset trading may not fall within such authority but may fall within other authorities, or may require additional regulatory approval. For example, the Report provides that an arrangement under which a bank purchases digital assets as agent or principal or negotiates a purchase or sale may be inconsistent with the bank’s finder authority.

As discussed further below, the permissibility of banking institutions to engage in certain specific digital asset-related activities could be further clarified by the Agencies. Acknowledging these existing uncertainties, the Report urges the Agencies to provide additional guidance and best practices to banking institutions to help ensure greater regulatory clarity with respect to their digital asset-related activities. Specifically, the PWG recommended the following initial activities and topics for the Agencies to consider when clarifying the limits of banks’ powers in this arena:

• Digital asset custody
• The use by banking organizations of third parties to perform certain functions, including infrastructure support
• Holding stablecoin reserves as deposits (with consideration to be given to implications relating to the recent adoption of the GENIUS Act), “on-balance sheet” or “as principal” activities involving digital assets
• Participating in pilots and experiments related to digital assets
• Tokenization and use of DLT/permissionless blockchains

Even before the issuance of the Report, the Agencies signaled their intent to provide additional guidance regarding digital asset activities. For example, the FDIC stated in FIL-7-2025 that “[t]he FDIC will continue to engage with the [PWG] and expects to issue further guidance in the future to provide additional clarity regarding banks’ engagement in particular crypto-related activities.”⁷ Similarly, the Federal Reserve provided in its announcement of the withdrawal of prior guidance, SR Letter 22-6 and SR Letter 23-8, that “[t]he Board, will work with the agencies to consider whether additional guidance to support innovation, including crypto-asset activities, is appropriate.”⁸

Regulatory Framework and Permissibility

Regarding the legal permissibility of and regulatory framework applicable to banks’ digital asset activities, the Report first discusses the Federal Reserve’s policy statement regarding Section 9(13) of the Federal Reserve Act (Policy Statement).⁹ The Policy Statement established a rebuttable presumption that a state member bank is prohibited from engaging as principal in any activity that is impermissible for national banks unless those activities are permissible under federal statute or applicable regulations. The Report notes that the Policy Statement is contrary to the longstanding tenet that the dual banking system should promote innovation in new banking products on the state level and that it further complicates the degrees to which state member banks could engage in digital asset-related activities.

The Policy Statement does not expressly impose an additional constraint on the ability of state member banks to engage in digital asset activities that are permissible for national banks. The core principle of the Policy Statement is that the “same bank activity, presenting the same risks, should be subject to the same regulatory framework, regardless of which agency supervises the bank,” which “helps to level the competitive playing field among banks with different charters and different federal supervisors, and to mitigate the risks of regulatory arbitrage.”¹⁰ The Report appears to take a step further and assert that state banks should be allowed, subject to applicable state law, to engage in digital asset activities beyond those determined to be permissible for national banks to “serve as laboratories for innovation.”¹¹

With the Policy Statement still in effect and limited guidance available to banking institutions, uncertainty remains regarding the permissibility for state member banks of certain digital asset-related activities. The Report provides examples of such uncertainties: acquiring and using digital assets to pay “gas fees” to conduct bank-permissible activities on public blockchains; purchasing and selling digital assets in “riskless principal” transactions on behalf of customers; making markets in digital assets; and acting as finders and lenders in the context of digital asset-related activities.

To this end, the PWG recommended that the Agencies provide further guidance on the permissibility of digital asset activities with a technology-neutral approach. The PWG also recommended that the Federal Reserve rescind the Policy Statement to ensure that state member banks are permitted to explore innovative banking technologies and products.

Bank Charters and Master Accounts

The Report suggests that some digital asset firms that provide payments, lending, or custody services may consider obtaining a bank charter and Federal Reserve master account, noting that doing so could offer those digital asset firms a competitive advantage over other digital asset firms and a level playing field with traditional financial institutions.

Under the previous administration, some nonbank financial technology companies and digital asset firms that applied for federal charters experienced delays or rejections. Similarly, with respect to master accounts, the Federal Reserve adopted revised guidelines for evaluating master account and Federal Reserve services requests to deal with an uptick in non-traditional applicants for such accounts, including a number of novel state-chartered institutions.¹² Nonetheless, applications for master accounts were often rejected or experienced long processing times. The PWG appears to be focused on rectifying perceived inequities in, and bringing additional clarity to, the chartering and master account process. Accordingly, the Report highlights the importance of increasing transparency and timeliness regarding the process to obtain a charter or a master account, and stresses that the Agencies should not prohibit otherwise eligible entities from obtaining bank charters, obtaining federal deposit insurance, or receiving Federal Reserve master accounts or services solely due to their engagement in digital asset activities.

The PWG also recommended that the Agencies clarify and define in regulation the expected timelines for decision-making on completed applications for charter licensing and requesting a Federal Reserve master account. Notably, one such recommendation is that an application should be deemed approved if regulatory timelines are not met for the given application. In addition, the PWG recommended that the Agencies provide information to the public on the number of and average time to review completed applications.

Use of Third Parties

Although engaging a third party to provide digital asset services is not discussed as a standalone topic, the Report contains numerous references to the use of third parties, by community banks and others, to provide digital asset services, recognizing that banking institutions have relied, and will continue to rely, on third party service providers to provide such digital asset-related services. Some examples from the Report include:

• “For example, a bank-owned distributed ledger platform could leverage components and solutions developed in-house or by third-party providers. Likewise, a bank may decide to tokenize its products through white-label offerings on third-party platforms.”¹³
• “Banks interested in offering retail customers exposure to digital asset markets may seek to provide these services through a third party.”¹⁴
• “As such, banks looking to offer [digital asset-related lending services] often engage a third party to custody collateral, provide valuations, manage margin calls, develop smart contracts, or provide other services as appropriate.”¹⁵

As discussed in the Report, recent guidance issued by the Agencies regarding crypto custody services, including the July 14, 2025 Joint Statement on Crypto-Asset Safekeeping by Banking Organizations and OCC’s IL 1184, clarified that banking organizations may use third parties as sub-custodians to provide crypto custody services. While recognizing this progress, the Report urges the Agencies to issue further guidance on the permissibility of using third parties as infrastructure providers or for other digital asset services, including best practices or standards applicable to banks’ use of third parties.

Takeaways

The Report marks another significant development in the ongoing effort to shape the regulatory framework applicable to the digital asset markets and engagement by banking organizations in such markets and with digital asset products and firms. The Report reflects not only the views of the members of the PWG and, to a certain extent, the staffs of the Agencies, but also input provided by the banking sector. Accordingly, the recommendations set forth in the Report may represent an informal agenda of sorts for the Agencies to follow. While rulemaking and supervisory priorities may not be settled, and legislative developments and economic or market events may intervene to impact the Agencies’ plans, it is reasonable to expect action in the following areas in the coming months:

• The publication of additional guidance regarding the legal permissibility of various banking activities involving digital assets. In particular, engagement in “as principal” activities and transactions, clarification of the legal authority to tokenize deposits and engage in stablecoin reserving in light of the enactment of the GENIUS Act, and the ability to perform lending functions or hold digital asset loan collateral are areas of interest that could be ripe for further guidance.
• The Agencies may be more willing to consider novel proposals relating to digital asset activities and to permit banking organizations to engage in such activities through pilot programs or “regulatory sandboxes.”
• The Agencies, perhaps in coordination with other federal agencies or rule-setting industry organizations, may release guidance or clarify supervisory expectations addressing technological requirements for engaging in digital asset activities and management of cybersecurity and illicit finance risk in light of rapidly evolving technologies.
• The Agencies’ supervision policies may be further modified to ensure neutrality and non-discrimination in the supervisory process with respect to banks that are more heavily engaged in digital asset activities.

The Federal Reserve may, whether formally or informally, modify its stance on master account access by “novel charter” types in order to ensure that all applicants participate in a subjective process. Notably, leading banking sector trade associations do not support equal access to Federal Reserve master accounts for depositories and nonbanks alike, and the lack of a stakeholder consensus on this issue may result in more muted action by the Federal Reserve.

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© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.