US banks warn OCC crypto charter could weaken banking system

The U.S. banking industry is systematically challenging the Office of the Comptroller of the Currency (OCC)'s approach. The backlash targets regulators' efforts to integrate crypto companies into the federal banking system.

On December 12, the OCC issued conditional National Trust Charter approvals to five digital asset companies, including Ripple, Fidelity, Paxos, First National Digital Currency Bank, and BitGo. The banking regulator stressed that virtual currency applicants were subjected to the same “rigorous vetting” as other national bank license applicants.

U.S. banking industry objects to OCC move

However, the American Bankers Association (ABA) and the Independent Community Bankers Association of America (ICBA) argue that the OCC's actions will create a two-tier banking system.

Their main argument is that fintech and cryptocurrency companies are granted prestigious state charters without receiving Federal Deposit Insurance Corporation (FDIC) coverage or meeting the traditional capital and liquidity standards required of full-service banks.

The groups argue that this structure facilitates what they call regulatory arbitrage at the federal level.

By securing a national charter, cryptocurrency companies can benefit from federal preemption of state transfer laws. At the same time, it avoids many of the compliance obligations that apply to insured depository institutions.

ABA President Rob Nichols said the approval “blurs the lines” on what constitutes a bank. He further argues that this erosion of definition risks weakening the integrity of the Charter itself.

In his view, extending fiduciary powers to companies that do not fulfill traditional fiduciary duties creates financial institutions that resemble banks in name and scope but lack the same oversight.

Meanwhile, their concerns extend beyond competition.

Banking groups have warned that consumers may have difficulty distinguishing between insured banks and state trust institutions that hold large amounts of uninsured crypto assets.

They argue that the OCC has not adequately explained how it would respond to the failure of such organizations, especially when they hold billions of dollars of digital assets outside of traditional safety nets.

ICBA seeks suspension of charter

ICBA also directly challenged the OCC's legal authority to issue the Charter.

This group focused its criticism on Interpretive Letter No. 1176. This guidance allows trust banks to engage in non-fiduciary activities such as custody of stablecoin reserves.

ICBA President Rebecca Romero Rainey described the move as a “drastic policy change” that extends the National Trust Charter beyond its historic purpose.

“The OCC’s dramatic policy change under Interpretation Letter No. 1176 is a departure from the traditional role of trust companies and an acceptance of an inconsistent regulatory framework that threatens financial instability, forcing the agency to reverse course,” Rainey added.

The group argues that the OCC is allowing nonbank fintech companies to effectively borrow the credibility of the U.S. banking system while avoiding the “full range” of regulations imposed on insured institutions.

In light of this, both industry bodies are calling for the immediate suspension and revocation of the approval.

They warn that the current framework could create a system in which the OCC is “not equipped to resolve issues in an orderly manner.” They say such failures could put traditional banks and the broader financial system at risk.

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