Banking Group “Strongly Opposes” Coinbase’s Trust Bank Charter Application, Urges OCC To Reject It

ICBA's Opposition to Coinbase's Application

The Independent Community Bankers of America (ICBA) is urging the US Office of the Comptroller of the Currency (OCC) to reject Coinbase’s application for a national trust company charter. The ICBA, the office responsible for approving banking applications, stated in a recent letter to the OCC that it “strongly opposes” Coinbase’s application for the charter through its subsidiary, Coinbase National Trust Company. The ICBA believes this application fails to meet statutory chartering standards, presents compounding safety and soundness risks, and would set a dangerous precedent for the structure of the US banking system.

Concerns Regarding Charter Requirements

The ICBA argued that Coinbase’s charter application “fails to meet the requirements for the approval” of a national trust bank charter under the National Bank Act (NBA) and the “OCC’s own regulations and standards.” The ICBA urged the OCC to deny the application on multiple independent grounds, each of which is disqualifying under the OCC’s statutory chartering standards. The ICBA highlighted “fundamental deficiencies” that it says the application exhibits in at least three key areas.

Firstly, the Coinbase subsidiary proposes to rely on the exchange’s “demonstrably flawed risk and control functions” while also operating under a governance structure “that prevents independent oversight.”

The ICBA also argued that the Coinbase subsidiary “would struggle to achieve and maintain profitability during crypto bear markets” given its “narrow concentration in specific types of digital asset custody.” It added that the subsidiary’s parent company, Coinbase, would struggle during crypto bear markets as well due to its high concentration to the digital asset market, and won’t be able to provide the subsidiary with much support during these market downturns.

Lastly, the ICBA argued that the OCC’s “untested receivership framework would struggle to resolve an uninsured institution” that has the proposed scale and “operational complexity” of the Coinbase subsidiary.

Legal and Procedural Issues

In addition to the concerns around those three key areas, the ICBA stated that there are “significant legal and procedural issues that must be resolved” before Coinbase’s national trust bank charter application can be approved. According to the ICBA, the application appears to rely on the OCC’s Interpretative Letter 1176, which looks to authorize national trust banks to engage in non-fiduciary activities beyond those that are permitted under 12 U.S.C. § 92a.

The ICBA said that the interpretative letter “was issued without the public notice and comment procedures” that are required by the Administrative Procedure Act (APA). Therefore, the ICBA argues that the letter “is not legally valid” because the OCC “cannot lawfully approve activities based on an interpretative letter that violates the APA.”

Coinbase's Strategic Aims

The ICBA’s letter comes after Coinbase applied for a national trust charter in October. This move is part of the exchange’s broader plan to “bridge the gap between the crypto economy and traditional financial system,” the firm stated in a statement at the time. Coinbase added in its statement that it “has no intention of becoming a bank.”

In response to the ICBA’s letter, Coinbase’s chief legal officer Paul Grewal said on X that the letter is “another case of bank lobbyists trying to dig regulatory moats to protect their own.”

“From undoing a law to go after rewards to blocking charters, protectionism isn’t consumer protection,” he added.

Other Crypto Companies Seeking Charters

Although Coinbase said it does not plan on becoming a bank via its OCC application, other crypto companies, including Ripple and Circle, have applied for national bank charters. This follows the US government passing legislation to establish a framework for payment stablecoins. Both Ripple and Circle have their own stablecoins; Ripple offers its RLUSD token, which has a market cap of over $1 billion, while Circle’s USDC is the second-largest stablecoin in the market with a capitalization of over $75 billion.

Last week, the crypto-native firms applying for banking charters received pushback from the Bank Policy Institute (BPI), a Wall Street lobbying group, which also targeted Coinbase. Ripple CEO Brad Garlinghouse responded by calling for equal access for crypto firms to banking infrastructure.