Invest2 publishers3 min readPublished
Community bankers sue the OCC over trust charters approved for at least 13 crypto firms
Community bankers sued the OCC, arguing it lacks National Bank Act authority for trust charters approved for 21 firms, at least 13 of them crypto companies. The charters matter most to stablecoin issuers seeking room above the $10 billion cap on state-qualified issuers.
The Investor · Invest desk
What happened
- The suit targets an OCC interpretive letter and final rule that, ICBA says, claim chartering powers the National Bank Act does not authorize.
- Trust-charter banks fall outside the Bank Holding Company Act, so the Federal Reserve cannot supervise their parent companies as it would a traditional bank's.
- The case is being filed in the U.S. District Court for the District of Columbia, according to American Banker, which obtained the lawsuit.
Compiled by The InvestorSomething wrong?How this is made
Why it matters
- constraint A stablecoin issuer planning to grow past $10 billion outstanding is now building on a federal charter whose legal basis is being contested in court.
- cost If the charters stand, community banks keep paying regulatory costs that ICBA says their chartered crypto competitors avoid while chasing the same customers.
- exposure If a crypto crash pushed an uninsured trust bank into failure, its customers would depend on an OCC receivership process that ICBA calls untested.
- exposure At least 13 crypto firms holding OCC approvals face a ruling that could narrow what their charters allow them to do.
A state-qualified stablecoin issuer is capped at $10 billion in outstanding coins, according to American Banker [6]. An issuer that wants to grow past that line has an easier path through a national trust charter from the OCC [6]. The filing says the OCC approved 21 trust banks, conditionally or otherwise, under the Trump administration, and at least 13 of them are crypto companies [4][5]. So crypto firms hold at least 62% of the approvals [1], and every other kind of applicant holds at most eight [2].
ICBA treats the competition as a cost problem. The group said that "because crypto trust banks are not subject to the same costly regulatory requirements as community banks, they will have lower operational costs" [9]. Part of that gap is at the holding company. Trust-charter banks fall outside the Bank Holding Company Act, so the Federal Reserve cannot supervise their parents [7]. The suit also cites the separation of banking and commerce [15].
The remedy ICBA wants applies to its rivals. "Any non-fiduciary firm seeking the benefits of a federal bank charter should meet the same standards as community banks," ICBA President and CEO Rebeca Romero Rainey said in a statement [10]. The group is asking a court to hold rivals to its members' standards. It is not asking for its members' own requirements to come down.
ICBA's risk argument concerns failure. It singled out the OCC's approval of Protego Holdings Corporation [12] and argued in the lawsuit that "the OCC's untested receivership framework would struggle to resolve an uninsured institution of Protego's and other crypto companies' proposed scale and complexity" [13]. Lee Reiners, a lecturing fellow at Duke University, said the rule "effectively permits the OCC to charter uninsured national trust banks that engage substantially in non-fiduciary crypto-related activities while avoiding the regulatory framework applicable to traditional banks" [14].
A judge has three broad options. The court could agree with ICBA that the interpretive letter and final rule go beyond the statute [3], or it could uphold both. It could also split the case along the statute's line around fiduciary activity [1]. Reiners puts much of the crypto firms' business on the other side of that line [14].
In my view, most of the money in this case is in the stablecoin route, because a ruling against the rule [3] would hit hardest the issuers that need a federal path past $10 billion [6]. ICBA's own case argues the opposite. The harm it names is deposits moving into institutions with no obligation or history of lending to local businesses [8], and community banks bear that cost whatever happens to stablecoins. The filing, as reported, does not put a dollar figure on those deposits. If the case record or the chartered banks produce a deposit figure close to the $10 billion cap, the deposit fight is the bigger one and this view is wrong.
What to watch
- The OCC's answer in the District of Columbia court, and whether it defends the rule on the line between fiduciary and non-fiduciary activity.
- Any deposit or balance figures for the 21 approved trust banks, which would test ICBA's claim that deposits are leaving community banks.
- Whether Protego or other crypto firms with conditional approvals move to final approval while the suit is pending.