US Banks Oppose Crypto Trust Charters Linked to USDC, Raising Regulatory Concerns

• Traditional banks view national trust charters as a loophole for crypto companies to access banking privileges without equivalent oversight.

• Crypto firms like Ripple and Circle are also facing resistance, with letters sent to regulators highlighting risks to financial stability.

• According to statements from the OCC, approving these charters could enable better supervision of nonbank entities, though banks counter that it undermines existing regulations, with stablecoin yields like 3.85% on USDC raising deposit-like concerns.

Discover why US banks oppose crypto national trust charters and the regulatory battle shaping finance. Stay informed on stablecoin rules under the Genius Act—explore key insights today.

What Are the Risks of Crypto Firms Seeking National Trust-Bank Charters?

Crypto national trust charters enable digital asset platforms to operate under federal oversight as trust companies, handling custody and payments but avoiding the broader requirements of full banking licenses. Major US banks, through groups like the Bank Policy Institute (BPI) and the Independent Community Bankers of America (ICBA), have raised alarms that this could erode regulatory standards. They argue that firms like Coinbase are using these charters to integrate into the traditional financial system while sidestepping stricter rules on lending, deposits, and capital reserves.

Why Do Traditional Banks Accuse Crypto Platforms of Gaming the Regulatory System?

Traditional banks contend that crypto firms pursuing national trust-bank charters seek the prestige and operational advantages of a federal bank status without the accompanying burdens. For instance, the BPI sent letters on October 31 to the Office of the Comptroller of the Currency (OCC) opposing applications from Coinbase, Ripple, Circle, and Paxos, claiming these entities aim to handle customer funds and payments with limited supervision. This approach, banks say, could destabilize the sector by allowing crypto platforms to offer high-yield stablecoin options—such as Coinbase’s 3.85% return on USDC holdings—mimicking interest on deposits without the same protections under laws like the Genius Act.

The Genius Act, recently enacted as the first federal framework for stablecoins, prohibits issuers from offering interest to prevent them from functioning as unregulated banks. However, platforms affiliated with issuers, like those tied to Circle’s USDC, continue to provide yields, prompting fears of capital flight from insured bank deposits to less-secured crypto alternatives. Banks emphasize that trust charters historically focus on narrow functions like asset custody, not broad financial services, and expanding them for crypto could invite risks without adequate safeguards.

OCC Comptroller Jonathan Gould addressed these concerns at the Clearing House annual conference in New York, asserting that trust charters actually facilitate oversight. “I have no ability to supervise or regulate nonbanks,” Gould stated, adding that bringing crypto firms into the system voluntarily ensures a more equitable regulatory environment. Despite this, banks maintain that partial charters create an uneven field, potentially weakening consumer protections and the integrity of the banking charter process.

Frequently Asked Questions

What Impact Could Crypto National Trust Charters Have on Traditional Banking?

Crypto national trust charters could shift customer funds toward stablecoin platforms offering competitive yields, reducing deposits in traditional banks and challenging their revenue models. With federal legitimacy, these firms might expand into payments and custody services, but without full compliance, this risks systemic vulnerabilities. Regulators must balance innovation with stability to prevent unintended consequences in the US financial landscape.

How Is the US Government Responding to the Debate Over Crypto Charters?

The US government, through agencies like the OCC and Federal Reserve, is actively engaging with the crypto sector to foster innovation under supervision. Recent events, including the Federal Reserve’s payments innovation conference, signal a welcoming stance, as Fed Governor Christopher Waller noted: “This is a new era for the Federal Reserve in payments, where the DeFi industry is welcomed to the conversation.” This reflects a policy shift toward integrating crypto while enforcing rules like the Genius Act.

Key Takeaways

• Regulatory Resistance: Trade groups like the BPI and ICBA are lobbying against crypto firms’ charter bids to protect banking standards.
• Supervision Benefits: OCC officials argue that charters enable federal oversight of nonbanks, promoting a safer integration into finance.
• Innovation Push: Crypto advocates, including Blockchain Association CEO Summer Mersinger, call for reducing barriers to allow competition in financial services.

Conclusion

The ongoing dispute over crypto national trust charters highlights tensions between traditional banking safeguards and the push for digital asset innovation. As platforms like Coinbase and Circle navigate regulatory hurdles, the Genius Act provides a foundation for stablecoin oversight, yet banks warn of potential loopholes. With the Trump administration’s pro-crypto policies and Federal Reserve signals of inclusion, the sector is poised for evolution—stakeholders should monitor OCC decisions to understand the future of US finance.