Community Bank Association Sues OCC Over License Issuance, Claims It Lacks Authority to Grant National Trust Bank Licenses to Crypto Firms
The Independent Community Bankers of America (ICBA) filed a lawsuit against the Office of the Comptroller of the Currency (OCC) in the U.S. District Court for the District of Columbia on October 2, claiming that the OCC lacks the authority to issue national trust bank licenses to institutions primarily engaged in cryptocurrency business.
The lawsuit is based on the Administrative Procedure Act, targeting the final rule related to Interpretive Letter No. 1176 issued by the OCC on March 2. The association is seeking a court ruling that the rule and interpretive letter are unlawful and to revoke the conditional approval of a trust license for digital asset company Protego Holdings granted in February.
ICBA CEO Rebeca Romero Rainey stated that Congress did not design the national trust license as a backdoor for crypto companies to enter the banking system; such licenses allow companies to gain the credibility of a federal bank charter without having to comply with Community Reinvestment Act obligations, on-site supervision, capital and liquidity standards, and FDIC deposit insurance.
These trust banks do not accept cash deposits or issue loans, thus falling outside a significant amount of federal prudential regulation, and the licenses can take precedence over several state laws, including consumer protection. The American Bankers Association reported that during the Trump administration, the OCC approved or conditionally approved 21 trust banks, at least 13 of which are crypto companies.
Institutions that have entered this pathway include: Circle, which received final approval to establish Circle National Trust on July 10; Coinbase National Trust, conditionally approved on April 2; and World Liberty Trust, conditionally approved on August 14, with a minimum capital of $20 million and the ability to issue and custody the stablecoin USD1, which has a circulation exceeding $4 billion. Ripple, BitGo, Fidelity Digital Assets, and Paxos also received conditional approvals by December 2025.
Buyers are crypto companies seeking federal licenses to gain interstate operation and stablecoin issuance custody qualifications, while the pressure on sellers falls on community banks with assets typically below $10 billion. The event is driven by license approvals rather than market price fluctuations. License holders gain regulatory credibility and settlement access, while community banks face pressure from stablecoins diverting deposits and payment accounts; the ICBA previously estimated that if stablecoin earnings are not banned, industry deposits could decrease by $1.3 trillion, and local lending could drop by $850 billion.
Source: Public Information
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The ICBA's lawsuit is not a sudden shift. In December 2025, it publicly opposed the OCC's one-time conditional approval of five non-bank fintech national trust licenses, and in April 2026, it separately opposed Coinbase National Trust, citing risks, internal control deficiencies, uncertain profitability, and disposal difficulties. During the same period, it requested that the CLARITY Act tighten the ban on stablecoin earnings from "economically or functionally equivalent to interest" to a complete prohibition, and pressured the Senate alongside 44 state associations, indicating its strategy is to lobby first and litigate second.
The capital pathway is very specific. Trust licenses do not grant deposit and lending rights but do allow for stablecoin issuance, reserve custody, and institutional asset custody. After World Liberty Trust's approval, the issuance of USD1 and the custody of dollar reserves can be reclaimed from partner BitGo, provided there is at least $20 million in tier one capital, half of which or $10 million must be qualified liquid assets. After Circle's final approval, the initial phase will involve custodial management for itself and related parties, with potential expansion to institutional clients and USDC reserve management. The license essentially keeps external custody fees and reserve earnings within the group.
A comparable case is the national bank charter for fintechs promoted by the OCC around 2020. At that time, companies like Fig and Varo attempted to bypass the state charter puzzle, with community banks and state regulators also suing for overreach, and some pathways later stalled. The current situation is not an expansion period for the crypto industry but a license control period: Circle, Coinbase, Ripple, Paxos, Crypto.com, World Liberty, and Morgan Stanley are all vying for the same narrow channel, competing for federal priority rather than physical locations.
Structurally, this represents a transfer of pricing power. The national trust license shifts the "federal bank" label from community banks that accept deposits to crypto custodians and stablecoin issuers that are not insured and face lighter regulation. The OCC claims that the final rule neither expands nor contracts existing authority, while the ICBA argues that Interpretive Letter No. 1176 inserts non-trust activities into the trust authority of the National Bank Act. If the court supports the association, already approved licenses may face validity risks; if it supports the OCC, community banks will continue to cede pricing power on payment accounts and short-term deposits to stablecoin issuers.
ABAB News · Cognitive Law
- Licenses are not a business; they are someone else's entry cost.
- Regulatory arbitrage = the same sign × lighter obligations.
- Once a backdoor is legalized, the front door loses pricing power.