1 

BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551 

DIVISION OF SUPERVISION

AND REGULATION

DIVISION OF CONSUMER AND

COMMUNITY AFFAIRS

SR 23-8 

CA 23-5 

August 8, 2023

TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE 

SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK

AND ALL STATE MEMBER BANKS 

SUBJECT: Supervisory Nonobjection Process for State Member Banks Seeking to 

Engage in Certain Activities Involving Dollar Tokens

Applicability: The information contained in this letter is relevant to all state member banks. 

This letter provides a description of the supervisory nonobjection process for state 

member banks seeking to engage in certain activities involving tokens denominated in national 

currencies and issued using distributed ledger technology or similar technologies to facilitate 

payments (dollar tokens). 

Background

On January 27, 2023, the Board of Governors of the Federal Reserve System (Board) 

issued a Policy Statement on section 9(13) of the Federal Reserve Act (Policy Statement)1

clarifying that the Board generally presumes that it will exercise its discretion under section 

9(13) of the Federal Reserve Act2 to limit state member banks and their subsidiaries to engaging 

as principal in only those activities that are permissible for national banks—in each case, subject 

to the terms, conditions, and limitations placed on national banks with respect to the activity — 

1

 Policy Statement on Section 9(13) of the Federal Reserve Act, 88 Fed. Reg. 7848 (February 7, 2023); 

12 CFR 208.112.

2

 12 U.S.C. § 330. 
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unless those activities are permissible for state banks by federal statute or under 12 CFR part 

362.3 

In Interpretive Letter 1174, the Office of the Comptroller of the Currency (OCC) 

specifically recognized the authority of national banks to use distributed ledger technology or 

similar technologies to conduct payments activities as principal, including by issuing, holding, or 

transacting in dollar tokens.4

 However, the OCC conditioned the legal permissibility of these 

activities on a national bank demonstrating, to the satisfaction of its supervisors, that it has in 

place controls to conduct the activity in a safe and sound manner.5

 

Nonobjection Process for Dollar Token Activities

A state member bank seeking to engage in activities permitted for national banks under 

OCC Interpretive Letter 1174, including issuing, holding, or transacting in dollar tokens to 

facilitate payments, is required to demonstrate, to the satisfaction of Federal Reserve supervisors, 

that the bank has controls in place to conduct the activity in a safe and sound manner.6 To verify

this requirement has been met, a state member bank should receive a written notification of 

supervisory nonobjection from the Federal Reserve before engaging in the proposed activities.7 

A state member bank seeking to engage in such dollar token activities, including for the 

purpose of testing, must notify its lead supervisory point of contact at the Federal Reserve of the 

bank’s intention to engage in the proposed activity and should include a description of the 

3

 12 CFR 208.112(c). If a state member bank or its subsidiary seeks to engage in an activity as principal 

that is not permissible for a national bank or for an insured state member bank by federal statute or under 

12 CFR part 362, the state member bank or its subsidiary may not engage in the activity unless the bank 

has received the prior permission of the Board under 12 CFR 208.3(d)(2). See 12 CFR 208.112(d). 

Insured state member banks can fulfill this filing requirement by instead receiving permission from the 

Federal Deposit Insurance Corporation under section 24 of the Federal Deposit Insurance Act and 12 CFR 

part 362.

4

 OCC Interpretive Letter No. 1174 (January 4, 2021). The OCC uses the term “stablecoin” and the 

Board uses the term “dollar token,” but the terms are synonymous for purposes of OCC Interpretive 

Letter 1174. For the avoidance of doubt, any bank liabilities (including deposits) that meet the definition 

of dollar token above are “dollar tokens.”

5

 OCC Interpretive Letter No. 1179 (November 18, 2021). 

6

 Depending on the specifics of the proposed activity, filing requirements may apply. For example, some 

activities involving dollar tokens may represent a change in the general character of a bank’s business. 

See 12 CFR 208.3.

7

 If a state member bank was already engaged in such dollar token activities as principal prior to the 

release of this letter, it should notify its lead supervisory point of contact at the Federal Reserve of such 

pre-existing dollar token activities within 30 calendar days of the issuance of this letter. The bank may 

continue to engage in the existing activities while the Federal Reserve considers whether to provide a 

supervisory nonobjection for the existing dollar token activities or any planned expansion of such 

activities. Once the review is complete, the Board will provide a written response indicating whether a 

supervisory nonobjection for the existing activities and any planned expansion is granted.
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proposed activity.8

 Federal Reserve supervisory staff may follow up with the bank to seek 

additional information in order to better understand the proposal and the control framework that 

the state member bank has put in place. After receiving a written notification of supervisory 

nonobjection, state member banks will continue to be subject to supervisory review and 

heightened monitoring of these activities.

To obtain a written notification of supervisory nonobjection, a state member bank should 

demonstrate that it has established appropriate risk management practices for the proposed 

activities, including having adequate systems in place to identify, measure, monitor, and control 

the risks of its activities, and the ability to do so on an ongoing basis. Federal Reserve staff will 

focus on the risks discussed in the preamble to the Policy Statement with respect to dollar tokens, 

including, but not limited to:

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• operational risks, including those risks associated with the governance and oversight of 

the network; clarity of the roles, responsibilities, and liabilities of parties involved; and 

the transaction validation process (e.g., timing and finality of settlement of transactions, 

potential irreversibility of transactions, and the central authority of transaction records);

• cybersecurity risks, including risks associated with the network on which the dollar 

token is transacted, the use of smart contracts, and any use of open source code; 

• liquidity risks, including the risk that the dollar token could experience substantial 

redemptions in a short period of time that would trigger rapid outflows of deposits; 

• illicit finance risks, including risks relating to compliance with Bank Secrecy Act and 

Office of Foreign Asset Control requirements, which include requiring banking 

organizations to verify the identity of a customer, perform due diligence to understand the 

nature and purpose of the customer relationship, and perform ongoing monitoring to 

identify and report suspicious activity; and 

• consumer compliance risks, including risks related to identifying and ensuring 

compliance with any consumer protection statutes and regulations that apply to the 

specific dollar token activity.

Federal Reserve staff will also assess whether the bank has demonstrated that it 

understands and will comply with laws that apply to the proposed activities. 

8

 This notification will also serve as the state member bank’s notification under SR letter 22-6/CA letter 

22-6, “Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking 

Organizations” (August 16, 2022).

9

 88 Fed. Reg. 7850. In January 2023, the Board, the Federal Deposit Insurance Corporation (FDIC), 

and the OCC (collectively, the agencies) stated that, based on the agencies’ current understanding and 

experience to date, the agencies believe that issuing or holding as principal crypto-assets (referring 

generally to any digital asset implemented using cryptographic techniques) that are issued, stored, or 

transferred on an open, public, and/or decentralized network, or similar system is highly likely to be 

inconsistent with safe and sound banking practices. Board, FDIC, and OCC, Joint Statement on CryptoAsset Risks to Banking Organizations, at 2 (January 3, 2023). 
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Reserve Banks are asked to distribute this letter to the supervised banking organizations 

in their districts and to appropriate supervisory staff. In addition, a supervised banking 

organization may send questions via the Board’s public website.10

Michael S. Gibson

Director

Division of Supervision

and Regulation

Eric S. Belsky

Director

Division of Consumer

and Community Affairs

Cross References:

• Policy Statement on Section 9(13) of the Federal Reserve Act 

• SR letter 22-6/CA letter 22-6, Engagement in Crypto-Asset-Related Activities by Federal 

Reserve-Supervised Banking Organizations 

• Joint Statement on Crypto-Asset Risks to Banking Organizations 

10 See https://www.federalreserve.gov/apps/contactus/feedback.aspx.