Community Banks Sue Trump's Bank Regulator, Calling Its Crypto Charters a Side Door Into the Banking System

America's small banks have had enough of watching crypto firms walk into the federal banking system through a door they say Congress never built. On Friday, the Independent Community Bankers of America sued the Office of the Comptroller of the Currency in federal court in Washington, DC.

The ICBA, one of the largest US banking groups and usually the voice of smaller lenders, says the OCC is claiming "sweeping new powers to charter national trust banks that are not authorized by the National Bank Act." The lawsuit puts it more bluntly: "This vast expansion of power creates a gaping hole in financial regulation."

A rule built on the Comptroller's own letter

The target is the OCC's March 2 final rule on national bank chartering. That rule codifies Interpretive Letter 1176, a letter from Trump's first term written by Jonathan Gould when he was the agency's chief counsel. Gould is now the Comptroller, so the bankers are effectively challenging his own handiwork.

ICBA wants the court to declare both the rule and the letter unlawful. The case runs on the Administrative Procedure Act. ICBA argues the OCC has no statutory authority to charter banks that are neither depository nor fiduciary, that the rule is arbitrary and capricious, and that the letter skipped notice and comment. With Chevron deference gone, judges no longer have to defer to the agency's reading of the law, and that could weigh heavily on how this case goes.

According to the filing, the OCC has approved, conditionally or otherwise, 21 trust banks during the Trump administration, at least 13 of them crypto companies. The suit singles out Protego Holdings, saying Protego and other crypto firms have "severely flawed risk and control functions" and "are thus at serious risk of failure if the volatile cryptocurrency market crashes." It adds that the OCC's "untested receivership framework would struggle to resolve an uninsured institution."

Why everyone wants a trust charter

Trust charters do not let a firm take deposits or make loans. They are valuable anyway. Under the GENIUS Act, trust-chartered firms can become federal qualified payment stablecoin issuers, while state-qualified issuers are capped at $10 billion in outstanding stablecoins. And because trust banks are not treated as banks under the Bank Holding Company Act, the Fed cannot supervise their parent companies.

The recipient list includes Coinbase, Circle, Crypto.com, crypto-native Protego and Erebor, and World Liberty Financial, the firm partly owned by Trump and his family, whose approval drew fire from Sen. Elizabeth Warren. The approvals kept coming last month, from three trust banks built for stablecoins and AI agent payments to a full national bank charter for OpenReserve Bank.

ICBA chief Rebeca Romero Rainey made it a consumer issue. "Congress did not create the national trust charter as a side door into the banking system for crypto firms seeking the credibility of a federal bank charter without the Community Reinvestment Act obligations, consolidated supervision, capital and liquidity standards, and FDIC insurance that apply to insured depository institutions," she said. "Digital assets held at a crypto firm operating under a national trust charter do not carry those important safeguards."

There is a competitive grievance too. The suit argues crypto trust banks can offer many services similar to community banks at lower cost because they skip the same rules, "an unfair disadvantage" that could drain deposits from banks that lend locally.

The OCC stays quiet

The OCC does not comment on litigation, a spokesperson said. Gould has argued before that custody has been electronic for decades: "There is simply no justification for considering digital assets differently."

The big banks' Bank Policy Institute backed the principle. Its Paige Pidano Paridon said companies "should not receive trust charters unless they plan to limit their operations to genuine trust activities. If they want to engage in traditional banking activities, they should seek full-service banking charters."

ICBA has already shown it can slow crypto down. It played a big role in the pushback that stalled the Clarity Act in the Senate last month, partly over bankers' fears that its stablecoin provisions left them exposed to competition for deposits.