Banks have escalated turf wars with the crypto industry, with OCC trust bank charter approvals becoming the latest battlefield.
In a new lawsuit against the OCC, the Independent Community Bankers of America (ICBA) alleged that OCC “exceeded its authority.”
The OCC has far exceeded its limited statutory authority to charter trust banks that perform certain fiduciary activities. This vast expansion of power creates a gaping hole in financial regulation.
Under the Donald Trump administration, the Office of the Comptroller of the Currency (OCC) has granted conditional national trust bank charters to several crypto and fintech firms. These include Ripple, Circle, Paxos, Fidelity Digital Assets, Revolut, Trump-backed World Liberty Financial (WLFI), and more.
The approval allows the firms to provide asset custody and settlement services nationwide. However, it exempts them from FDIC insurance for consumer deposits.
For ICBA, this exemption allows crypto firms to enter the banking system under ‘lightly regulated national charters’ rather than more rigorously regulated traditional bank charters.
For the group, this is unfair competition to community banks, and the uninsured national bank charters could spread financial market instability.
As such, the ICBA sought the court to vacate the “Final Rule” and Interpretive Letter (IL) 1176, which gave the OCC sweeping powers to charter national trust banks.
Crypto industry slams ICBA lawsuit
The fight between the bank and the crypto industry has been going on for a while. It was evident in the stablecoin yield debate and eventually the stalling of the CLARITY Act.
Similarly, the banking sector has been publicly opposed to the OCC’s national bank charter approvals. In May, Senator Elizabeth Warren and other Democrats joined the opposition to the OCC’s approvals.
However, crypto firms didn’t evade regulations but sought them based on the nature of their business, argued The Digital Chamber (TDC), a crypto lobby group.
OCC’s Jonathan Gould also rejected the banks’ claims, noting that his “job is not about incumbent protection.” So, even though the lawsuit was not surprising, it marks a new escalation in the turf war between the two industries.
Speaking on the same, Alexander Grieve, VP of Government Affairs at Paradigm, said,
It’s almost like everything we said about the bank trades just wanting to protect their fiefdoms at the expense of protecting American consumers was true.
It remains to be seen how the lawsuit will pan out. Some policy watchers believe the update could stall the recent SEC push to modernize crypto custody rules.
But this could also be a tough balancing act for the U.S. government. On one end, it has to deal with an incumbent who wants to protect its turf. On the other hand, it would like to nurture and scale stablecoins to fill in the demand gap for Treasury bills.
Final Summary
- Banks want the court to stop and reverse the OCC’s national bank trust charter approvals to crypto firms.
- The crypto industry opposed the lawsuit as a push for incumbent protection.
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