US Bank Lobby Pushes Back on Crypto Bank Licence Bids
Key Takeaways
Traditional Banks Raise Concerns Over Regulatory Gaps
The American Bankers Association and other trade groups argue that approving bank charters for crypto firms like Circle and Ripple could undermine financial stability due to differences in oversight and compliance standards.
Crypto Firms Seek Greater Integration into Banking System
Companies such as Circle and Paxos aim to obtain national bank licences to offer regulated financial services, including stablecoin issuance and digital asset custody, with full access to the US banking system.
Regulators Face Pressure to Clarify Rules
As tensions grow between legacy financial institutions and crypto companies, federal regulators like the OCC are urged to define clear policies for digital asset firms seeking banking licences.
As cryptocurrency firms increasingly seek to integrate into the traditional financial system, tensions have mounted between the crypto sector and established banking institutions.
Overview
In recent months, several significant US banking trade associations have raised concerns about crypto firms applying for banking licences—questioning their regulatory compliance, risk management practices, and suitability for direct access to the Federal Reserve system. These developments underscore the widening divide between legacy finance and the digital asset industry.
On Thursday, the groups wrote that granting national bank charters to stablecoin issuers like Circle Internet Group and Ripple Labs would pose major policy and procedural concerns.
The groups argued,
“There are significant policy and legal questions as to whether the Applicants’ proposed business plans involve the types of fiduciary activities performed by national trust banks.”
Banking Groups Push Back Against Crypto Licensing Efforts
The American Bankers Association (ABA) and several state-level banking lobbies have opposed crypto-native firms such as Circle, Paxos, and Custodia Bank, which have either applied for or expressed interest in obtaining federal or state banking licences. These groups argue that granting such licences would allow crypto companies to sidestep the rigorous oversight that traditional banks must adhere to, creating an uneven playing field.
The ABA has submitted multiple comment letters to banking regulators—including the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—calling for stricter scrutiny of crypto applicants. Their primary concerns include the volatility of digital assets, lack of investor protections, and questions around how these firms manage AML (Anti-Money Laundering) and KYC (Know Your Customer) requirements.
In one notable example, Custodia Bank, a Wyoming-based digital asset bank founded by former Morgan Stanley executive Caitlin Long, was denied a master account with the Federal Reserve in early 2023. The Fed cited safety and soundness concerns, while Custodia argued that the decision was a politically motivated attempt to protect incumbent banks from competition.
Crypto Industry Pushes for Fair Access and Innovation
Crypto firms and industry advocates argue that many digital asset companies are more technologically advanced and transparent than traditional banks. They point to the use of blockchain for real-time auditing and secure recordkeeping, emphasising that acquiring a bank licence is a step toward tighter regulation, not an attempt to bypass oversight.
Circle, the issuer of the USDC stablecoin, has been vocal about its intent to become a full-reserve national bank. The company has said it supports strong regulatory frameworks and believes it can meet—or exceed—existing financial compliance standards. Similarly, Paxos, which powers stablecoin infrastructure for PayPal and others, has pushed for broader regulatory recognition of blockchain-based financial services.
Crypto advocates argue that US regulators are dragging their feet compared to more progressive jurisdictions like Singapore, the UK, and the EU, where digital asset companies have clearer regulatory pathways. Without US licences, firms face limitations on offering banking services, custody, or payments infrastructure in the world’s largest financial market.
A Pivotal Moment for Crypto and Traditional Finance
The conflict between crypto firms and traditional banks is not just about licences—it’s about the future structure of the financial system. Banking lobbies fear being disrupted by blockchain-based systems that offer faster settlement, 24/7 operations, and lower fees. Access to banking infrastructure could help crypto firms scale and build trust with mainstream users.
Federal regulators have yet to set a clear precedent on handling these licensing bids, and recent court cases—like Custodia’s lawsuit against the Fed—could reshape the regulatory landscape. Meanwhile, bipartisan lawmakers in Congress have introduced bills such as the Financial Innovation and Technology for the 21st Century Act, which seek to define roles for both the SEC and CFTC while outlining how digital asset firms can engage with the banking system.
As crypto adoption continues to rise and stablecoins become increasingly integrated into payments, regulators and the traditional banking system are under pressure to adapt. Whether through partnership, regulation, or competition, the future of finance may depend on how these two sectors reconcile their differences.