The U.S. banking industry is systematically pushing back against the policies of the Office of the Comptroller of the Currency (OCC). They are challenging the regulators' efforts to integrate cryptocurrency companies into the federal banking system.
On December 12, 2023, the OCC conditionally approved national trust charters for five digital asset companies, including Ripple, Fidelity, Paxos, and First National Digital Currency Bank, and Bitgo. The banking regulators emphasized that these cryptocurrency applicants underwent the same "rigorous review" process as other national bank charter applicants.
U.S. banking industry protests OCC actions
However, the American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA) argue that the OCC's actions create a dual banking system.
Their main argument is that fintech and cryptocurrency companies receive prestigious national trust approvals without meeting the capital and liquidity standards applicable to traditional banks or the Federal Deposit Insurance Corporation (FDIC) coverage.
These groups argue that this structure allows for 'regulatory arbitrage' at the federal level.
Cryptocurrency companies are said to secure national approvals that exempt them from state money transmitter regulations while avoiding various regulatory obligations applicable to deposit banks.
Rob Nichols, ABA President, stated that such approvals “blur the conceptual boundaries of banking.” He also argued that this weakening of definitions poses a risk to the credibility of the approval system.
In his view, if trust powers are expanded to entities that do not fulfill traditional fiduciary duties, new entities may emerge that appear to be nominally and regionally banks but lack proper oversight.
Meanwhile, their concerns go beyond simple competition.
Banking groups warn that consumers find it difficult to distinguish between insured banks and state trust entities that hold large amounts of unprotected cryptocurrency assets.
They also point out that the OCC has failed to adequately explain how it would respond if such institutions were to hold trillions of dollars in digital assets outside traditional safety nets and then go bankrupt.
ICBA demands halt on approvals
The ICBA also directly questioned whether the OCC has the legal authority to issue national trust approvals.
This group focused criticism on interpretation letter 1176. This guidance includes provisions allowing trust banks to engage in non-fiduciary activities such as holding stablecoin reserves.
Romero Rainey, ICBA President, described this action as “a dramatic policy change that goes beyond historical purposes.”
“The dramatic policy change under OCC's interpretation letter 1176 strays from the traditional role of trust companies and allows for a contradictory regulatory framework that could lead to financial instability. Accordingly, the agency must change its policy.” – Romero Rainey, ICBA President
The group argues that the OCC is allowing non-bank fintech companies to leverage the credibility of the U.S. banking system while avoiding regulations imposed on insured entities.
Therefore, both industry groups demand an immediate halt and withdrawal of the approval.
Under the current system, the OCC warns that 'entities that cannot be resolved in an orderly manner' may arise. According to them, if such a situation occurs, existing banks and the broader financial system could be at risk.
