Community banks sue to challenge crypto’s route into U.S. banking

Small U.S. banks are taking their fight with crypto companies to court, arguing that their newer rivals are getting the credibility of a federal bank charter without carrying the same regulatory burden. The Independent Community Bankers of America has sued the Office of the Comptroller of the Currency over its approval of national trust-bank charters for crypto firms, according to CoinDesk (direct). At stake is a route digital-asset businesses are using to enter the U.S. banking and payments system.

The ICBA filed the lawsuit in federal court on Friday. It argues that the OCC, the agency that grants federal bank charters, has gone beyond the powers Congress gave it under the National Bank Act. The group says the regulator is admitting digital-asset trust banks without subjecting them to the oversight community banks face, leaving smaller lenders at a serious competitive disadvantage. Those are the banking group’s allegations, not a court finding.

A charter without the same obligations

National trust-bank charters provide federal authorization for institutions focused on trust activities, rather than the full range of ordinary banking services. Rebeca Romero Rainey, the ICBA’s president and chief executive, said crypto firms receiving these charters do not face the same obligations concerning capital, liquidity, supervision and deposit insurance. Capital is a bank’s financial cushion; liquidity is its ability to meet cash demands. Her argument is that access to the banking system should come with consistent safeguards.

“Congress did not create the national trust charter as a side door into the banking system for crypto firms seeking the credibility of a federal bank charter,” Rainey said.

There is an important distinction between the businesses involved. CoinDesk reported that these crypto firms do not follow the same business model or plan to offer the same services as typical community banks. They do not offer the same kind of cash deposit accounts for which Federal Deposit Insurance Corp. coverage is designed and required. Asked by CoinDesk for a response, an OCC spokesperson declined to comment on litigation.

A wider contest over banking access

The lawsuit extends a broader conflict between community banks and the digital-asset industry. The ICBA, one of the largest U.S. banking advocacy groups, mainly represents smaller institutions. It also helped oppose the Digital Asset Market Clarity Act, which failed to advance in the Senate last month. Bankers objected in part because they believed its stablecoin provisions did not protect their core deposit business from direct competition.

Meanwhile, the OCC has continued granting trust charters. The institutions include crypto-focused banks such as Protego and Erebor, alongside established digital-asset businesses such as Coinbase, Circle and Crypto.com. Banking regulators have credited the industry’s interest in these charters with helping revive the arrival of new banking names after a long drought.

The distinction between limited trust status and a full banking license is central to the dispute. Last month, the OCC granted a full national bank charter to OpenReserve Bank, a blockchain bank backed by investors including Andreessen Horowitz, Jump Capital and Coinbase Ventures. Rainey argues that firms seeking traditional banking activities should pursue full-service charters. The issue to watch is how the lawsuit tests the boundaries of the OCC’s authority—and the obligations attached to crypto’s entry into banking.