US banks say crypto applications for trust charters threaten financial system

Big banks in the U.S. are no longer staying quiet. They're calling out crypto firms for attempting to enter the regulated financial system using national trust-bank charters, and their frustration is clear. Two major trade organizations, the Bank Policy Institute (BPI) and the Independent Community Bankers of America, recently urged the Office of the Comptroller of the Currency (OCC) to reject Coinbase’s application for such a charter. And it’s not limited to just Coinbase—BPI has already sent letters opposing similar initiatives by companies like Ripple, Circle, Paxos, and others since October 31.

This conflict is about more than just competition over charters—it’s a battle for power. These charters would allow crypto firms to gain federal legitimacy without adhering to the strict regulations imposed on traditional banks. Banks fear that crypto platforms are using trust charters as a way to bypass full banking supervision, while still enjoying the benefits of being federally recognized financial institutions.

Traditional banks argue that crypto firms are gaming the system. They believe this is a backdoor strategy to gain the legitimacy of a bank without the extensive regulatory scrutiny. Banks worry that if a crypto firm with just a wallet app can obtain a charter, it undermines the entire purpose of the regulatory framework. Furthermore, they feel crypto platforms are unfairly rewriting the rules of the financial world without proper consultation or oversight.

Jonathan Gould, Comptroller of the Currency, defended the issuance of trust charters in a speech at the Clearing House annual conference in New York. According to him, these charters allow the OCC to bring crypto firms under federal oversight. Gould highlighted the importance of incorporating crypto companies into the system, saying, “The only way I can ensure a level playing field is for those who voluntarily come into the system or want to come into the system.” However, banks remain unconvinced, arguing that even with federal oversight, crypto firms still enjoy unfair advantages.

Tensions have also escalated around stablecoin practices. Banks point out that Coinbase offers a 3.85% return on USDC holdings, a stablecoin issued by Circle, which looks a lot like traditional deposit interest. Under the new Genius Act, stablecoin issuers are prohibited from offering interest. However, platforms tied to these issuers can seemingly skirt this rule, further increasing traditional banks' anxieties about uneven regulations. They argue this could divert customer funds from traditional banking into stablecoin-based returns, eroding their deposit base.

Despite mounting criticism, crypto firms are standing their ground. They assert that trust companies already comply with laws, including lending bans, which reduce risk. Summer Mersinger, CEO of the Blockchain Association, criticized banks for resisting innovation, stating, “It’s disappointing that the Bank Policy Institute continues to resist competition and innovation in financial services. It’s time to drain the regulatory moat protecting traditional finance.”

Adding to the crypto momentum is shifting sentiment from the federal government. Under Donald Trump’s administration, regulations on crypto were peeled back, fostering growth in the industry. Last month, the Federal Reserve hosted a payments innovation conference, making it clear that the crypto industry is no longer an outsider. Federal Reserve Governor Christopher Waller voiced support, saying, “This is a new era for the Federal Reserve in payments… today, you are welcomed to the conversation on the future of payments in the United States. This would have been unimaginable a few years ago.”