Banks Slam OCC’s Initial Blessing for Crypto Trust US Charters

The Office of the Comptroller of the Currency’s decision to grant limited banking charters to cryptocurrency companies is likely to face legal challenges from banks and even state regulators.

The OCC on Dec. 12 granted preliminary approval for national trust bank charters to Circle Internet Group Inc., Ripple, BitGo Inc., Fidelity’s digital assets arm, and Paxos, marking the first step toward integrating the digital currency companies into the federal banking system.

Banks and state regulators panned the preliminary approvals, which will allow crypto trust banks to provide custody and other services for digital assets, and indicated in statements that they intend to defend their turf.

“The conditional approvals of five national trust bank charters from the OCC further stretches the national trust bank charter beyond its statutory and historical purpose, endangers consumers, and creates institutions the OCC is not equipped to resolve in an orderly way,” Rebeca Romero Rainey, the president and CEO of the Independent Community Bankers of America, said in a statement.

The preliminary approvals will help stablecoin operators gain access to the federal banking system, including potentially the Federal Reserve’s payment services, without the same capital and other regulatory requirements that traditional trust banks must maintain, she said.

Traditional banking groups had sent comment letters opposing the crypto charters and are expected to file lawsuits challenging the OCC’s approvals.

“Stablecoins are a direct threat to the business model, and they’re trying to tackle it on all sides,” said Todd Phillips, a professor at Georgia State University’s Robinson College of Business and a former Federal Deposit Insurance Corp. attorney.

Blurring the Lines

The OCC’s preliminary approvals for the crypto-linked national trust banks come as the Trump administration pushes to give stablecoins and other digital assets more access to the regulated financial system.

“New entrants into the federal banking sector are good for consumers, the banking industry and the economy,” Comptroller of the Currency Jonathan Gould said in a statement. “They provide access to new products, services and sources of credit to consumers, and ensure a dynamic, competitive and diverse banking system.”

The five companies granted preliminary approval still face further regulatory reviews before a final go-ahead.

Coupled with the “GENIUS Act” (Public Law 119-27), a bipartisan law authorizing federal charters for payment stablecoin operators among other regulatory changes, banks see the rise of digital assets as a threat.

Unlike traditional banks, trust banks typically can’t take deposits or lend money. But banks raised concerns that the newly chartered firms may provide services beyond simply hold assets to back stablecoins.

“We are concerned that expanding the trust charter in this way, particularly for entities that may not engage in traditional fiduciary activities, could blur the lines of what it means to be a bank and create opportunities for regulatory arbitrage,” American Bankers Association President and CEO Rob Nichols said in a statement.

Another banking trade group, the Bank Policy Institute, raised concerns about the approval process.

“We hope the OCC will share more details about these applications so the public can better understand the rationale,” Greg Baer, the BPI’s president and CEO, said in a statement.

Adding Friction

State banking regulators raised their own objections to the OCC’s preliminary approvals, mirroring their concerns over a fintech charter the agency created at the tail end of the Obama administration.

New York’s Department of Financial Services and the Conference of State Bank Supervisors sued to block those charters. The lawsuits floundered because no fintech charters were issued, but the litigation had a chilling effect and the charter essentially died.

CSBS President and CEO Brandon Milhorn said in a Dec. 12 statement that his members “reserve their traditional chartering and licensing authority and will be prepared to protect their consumers.”

Unlike the fintech charters, the OCC did grant conditional approvals to the crypto firms, making litigation more viable, said Andrew Grant, a co-founder and partner at Runway Group, a consulting firm that advises financial technology and other companies.

“Many banks are really unhappy about the GENIUS Act and this use of National Trust Charters, and it seems they didn’t expect the velocity” behind the OCC’s moves, he said. “I’m sure they will want to do something to increase friction,” he said.

But because the GENIUS Act allows for national banks without deposit insurance, such as the ones that won provisional approval for national trust charters, traditional lenders may only be able to win any litigation on the margins should they sue, said Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at the Columbia Business School.

“That means that any win by the trade groups in litigation would probably involve restricting some crypto ‘related activities’ of the trading type, but not stablecoin issuance, redemption or custody,” he said in an email.