Key Takeaways
- Circle and Ripple are seeking national trust bank charters in the U.S.
- Representatives of the traditional banking industry are lobbying to prevent the applications from being approved.
- They argue that granting stablecoin issuers bank charters would let them compete with commercial banks without meeting the same requirements.
In recent months, Ripple and Circle have both applied for U.S. bank charters to advance their respective stablecoin businesses.
However, representatives of the traditional financial sector are lobbying to prevent approval, arguing that stablecoins threaten to drain deposits from the banking system.
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Circle and Ripple Seeking Trust Bank Charters
The type of banking permit Ripple and Circle are seeking is known as a national trust bank charter.
National trust banks don’t accept deposits or issue loans, but they are allowed to custody assets, manage client funds, and offer other financial products.
With authorization from the Office of the Comptroller of the Currency (OCC), stablecoin issuers would be able to manage their own reserves—mostly treasuries and other cash-equivalent assets.
If approved, Circle’s trust bank would act as the official custodian of USDC reserves. Meanwhile, Ripple would bring the custody of RLUSD reserves in-house.
Wall Street Lobbies Against Stablecoin Trust Banks
In July, the American Bankers Association (ABA) and other groups representing the U.S. banking sector wrote to the OCC to voice their concerns about Circle and Ripple’s charter applications. The letter also cited applications by Fidelity Digital Assets and Protego.
The associations asked the OCC to delay any decision, arguing that the applications raised “significant policy and legal questions ” that needed to be addressed.
“Granting these applications could represent a fundamental departure from existing OCC precedent,” the letter stated.
A few weeks after the ABA letter on Aug. 4, the Independent Community Bankers of America (ICBA) sent its own letters to the OCC specifically objecting to charter applications by Ripple and Circle.
The proposed national trust banks “would be legally prohibited from taking deposits,” the ICBA observed. However, by managing stablecoin reserves, it would enable Ripple and Circle “to offer a product that functions similarly to a demand deposit.”
This “has the potential to drain deposits out of the banking system,” the association warned.
Bank Deposits vs. Stablecoins
The ICBA’s concerns reflect a common criticism of stablecoins.
Functionally, USDC, RLUSD and their peers are similar to bank deposits. They retain their dollar value, can be transferred between accounts and used to pay for goods and services.
But there is one crucial difference. Unlike bank deposits, stablecoins are not protected by the federal deposit insurance corporation (FDIC), which guarantees customer deposits of up to $250,000 in the event of a bankruptcy.
National trust banks are part of a system that was designed in the wake of the 1929 Wall Street crash to insulate retail banking from riskier financial activity.
As part of that system, the government set a high bar or FDIC insurance coverage, which costs the largest commercial banks billions of dollars a year and requires them to meet strict prudential obligations.
Circle and Ripple, however, are seeking to “mimic the depository business of a traditional bank without the requirements, restrictions, and compliance obligations that accompany a traditional bank charter,” the ICBA charged.
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
