Community Banks Sue OCC to Block Crypto Trust Charters

ICBA asks court to overturn OCC’s crypto charter framework

The complaint seeks to set aside the National Bank Chartering final rule and Interpretive Letter 1176. It also requests injunctions preventing the OCC from relying on that rule or guidance to grant or conditionally approve further charters, and seeks to overturn Protego’s approval.

Those requests distinguish the lawsuit from a general objection to crypto banking. They target the legal foundation the regulator uses and one identified approval. They should not be read as an existing order shutting down every crypto custodian.

The 21-bank tally includes conditional approvals. It therefore cannot establish how many firms have completed their conditions, opened for business or begun serving customers. Likewise, the at-least-13 figure is attributed to the complaint rather than presented as a separate audit of the OCC’s current register.

ICBA’s announcement argues that the framework gives crypto firms advantages over community banks while exposing consumers to fewer protections. These are contested regulatory and competitive claims, not findings that a particular customer has lost money.

An OCC spokesperson told American Banker that the agency does not comment on ongoing litigation. The regulator’s existing rulemaking documents nevertheless provide a direct account of its legal position.

OCC says trust-bank rule clarifies existing authority

The OCC’s February 27 bulletin says the rule neither expands nor contracts its chartering authority. It describes the change as clarifying that limited-purpose national trust banks may conduct non-fiduciary activities alongside fiduciary activities.

The rule was published March 2 and took effect April 1. It replaced references to fiduciary activities in the chartering regulation with language addressing trust-company operations and related activities. The disagreement concerns what that statutory language permits, rather than whether a token uses a particular blockchain.

The Federal Register text says the OCC supervised approximately 60 national trust banks at the time of the rulemaking. Most were uninsured, while a few held deposits and had FDIC insurance. That historical total covers the wider trust-bank sector and is separate from ICBA’s 21-approval tally.

Interpretive Letter 1176, issued January 11, 2021, explains the distinction. The OCC said permitted state trust-company activities could include custody that is not fiduciary under federal trust rules.

Fiduciary capacity generally involves acting for another party in roles such as trustee or investment adviser. Simply safeguarding an asset can involve a different responsibility. The letter says a national trust bank need not perform primarily in a fiduciary capacity, while fiduciary functions remain subject to the applicable trust rules.

The competing interpretations place the business model under scrutiny. Permission to hold private keys, authority to exercise investment discretion and approval to undertake other activities are separate questions, even when a firm offers them through the same platform.

Crypto custody charters do not insure customer tokens

Protego’s February 4, 2021 conditional approval, specifically identified in the complaint’s jurisdiction section, described planned fiduciary custody of Bitcoin and Ethereum keys. It also outlined possible client-to-client trading, lending intermediation and asset issuance. These were proposed services, not evidence of current volumes or customer balances.

ICBA’s announcement separately points to a February 2026 approval. The OCC’s February 13 decision granted preliminary conditional approval for National Digital Trust Company, a proposed Protego Holdings subsidiary. It required preopening conditions before final authorization to commence business. The older conversion letter and newer charter decision are distinct records, so neither should be substituted silently for the other when describing the litigation. The precise approval addressed by any eventual court order will require checking that order’s text.

The distinction between approval and operational scope also appears in Circle’s trust-bank milestone. In its July 10 announcement, Circle said its bank would initially provide fiduciary digital-asset custody for the company and affiliates. Direct institutional custody and USDC reserve management were framed as potential future capabilities.

That example shows why the charter label alone cannot establish which services are available. An institution’s approved business plan, remaining conditions and actual deployment all affect the product customers can access.

The FDIC’s June consumer bulletin says deposit insurance applies to eligible deposit accounts at insured banks, including checking, savings and certificates of deposit. It does not cover crypto assets or losses from theft and fraud.

Federal oversight and deposit insurance consequently answer different questions. Supervision concerns how an institution operates; insurance covers specified deposits after an insured bank fails. Neither the charter label nor the lawsuit changes a token into an insured deposit.

The broader division between banking, custody and stablecoin rules is also examined in our U.S. crypto-policy guide. Here, the immediate question is the lawful scope of a trust charter, not a new rule setting Bitcoin ownership limits.

Source: Alternative.me, checked October 3. The Bitcoin-focused index reads 67, or Greed, versus 72 the previous day; it does not measure the lawsuit’s prospects.

As of 13:09 UTC on October 3, the filing establishes the requested relief, not its outcome. The next consequential developments are the OCC’s court response and any judicial order addressing the rule, guidance or identified approval; the reviewed materials do not establish a hearing or decision date.