The OCC just granted five crypto firms a national bank trust charter. Not everybody is happy.

The charter’s benefits

• National trust banks work under federal laws, unbound from a patchwork of (conflicting) state laws.
• They can “export their rates” nationally. That doesn’t mean lower rates to more borrowers… it means they can bypass state usury limits!
• They can operate seamlessly across states.
• They can fund themselves at the Fed’s discount window.
• They gain FDIC deposit insurance.
• They need less capital to access the Fed’s payment system.
• Although they can’t take deposits or lend money, they can now offer custody and may offer some (yet) undefined services.

The criticisms

Other trust banks and state regulators see the following issues:

• The move stretches the National Bank Charter beyond its traditional expertise.
• The OCC is not ready to resolves those institutions in an orderly way.
• The grant blurs the lines of what to be a bank means.
• Crypto firms may commit regulatory arbitrage. For instance, the GENIUS Act allows national banks NOT to have deposit insurance.
• Misunderstood opacity and consequences – what is permitted? What is not?

Past and future litigations

Litigation is already in motion. In 2017 and 2018, the NY DFS sued the OCC to block a “fintech charter”. The lawsuits may have failed in 2021 because no such charter had yet been issued, but it killed the project altogether.

The Conference of State Bank Supervisors has already stated that they “reserve their traditional chartering and licensing authority” and are “prepared to protect their consumers”, aka litigation is near.

What could they possibly gain in a new litigation? Probably to restrict the crypto banks’ mandates to activities related to trading, to prevent stablecoin issuance, or limit redemption or custody rights.

What the grants really mean

• The OCC framed the move as legitimate and progress. But from an enforcement and litigation perspective, it is something else entirely. It is a shift in jurisdiction, expectations, and accountability.
• The new charters raise unanswered questions. What are the fiduciary duties, custody standards, operational resilience, and supervisory scope for these new entities? These firms are now legally relevant long before the duties are fully defined.
• When regulatory perimeters expand faster than supervisory clarity, disputes do not disappear. They migrate. And they tend to surface later, under stress, through enforcement actions and civil claims… or when something goes wrong.

Granting a charter does not resolve risk.
It only reallocates risk to unchartered (!) territory.

References