By John Hintze
The prices of cryptocurrencies such as bitcoin and ethereum skyrocketed in the month after Donald Trump’s presidential victory, and while they’ve moderated somewhat since then, the clear consensus is that the Trump administration will benefit the crypto industry — and re-open opportunities for banks.
In fact, during the first Trump administration, banking regulators had already opened the door to more crypto assets entering the banking industry. Over the next four years, under the Biden administration, regulators for the most part slammed the brakes on banks’ crypto activity. Nevertheless, the crypto industry grew markedly over that period, with the launch of new crypto assets such as stablecoins and exchange traded funds, and major financial institutions such as BNY Mellon, Fidelity Investments and Blackrock offering exposure to and custody of crypto assets.
Players in the crypto industry clearly saw a second Trump presidency opening the door to less heavy-handed regulators, and they reportedly contributed at least $250 million to steer the 2024 the election in favor of the then presidential candidate and other crypto-friendly politicians running for office. Sen. Bernie Moreno (R-Ohio), for example, reportedly received $40 million from the crypto industry that bolstered his successful campaign against Sherrod Brown, the former Democratic chair of the Senate Banking Committee and a crypto skeptic. The new Congress has as many as 278 pro-crypto members.
Several bipartisan crypto-related bills emerged under Biden’s leadership but never found his signature. They may fare better under the new Congress and Trump, with one path a reaffirmation of guidance that emerged under Trump’s time in office.
OCC opened the crypto doors
In July 2020, six months before Trump left office, the Office of the Comptroller of the Currency issued interpretive letters clarifying that federally chartered thrifts and banks may provide custody services for crypto assets and facilitate crypto and fiat exchanges, settle transactions, and execute trades. Later in September, another OCC letter stated that they may engage in activities related to stablecoins — cryptocurrencies pegged to another currency, commodity or cryptocurrency — and hold stablecoin reserves. A third letter just before Trump left office, on Jan. 4, 2021, said banks may participate in independent node verifications networks — used to validate transactions in independent crypto networks—and use stablecoins for payment activities.
Those interpretive letters gave national banks regulatory comfort to provide a range of crypto products and services, but that changed soon after Biden took office.
“Under the Biden administration, they soured on those interpretations and took a careful and cautious approach, and they required institutions to seek approval before starting crypto activities,” says Jeremy McLaughlin, who leads law firm K&L Gates’ payments, bank regulatory and consumer financial services practice, and co-chairs its fintech and digital assets industry groups.
McLaughlin anticipates the regulatory agencies will likely “reaffirm and provide clear bounds about what banks can and can’t do in the digital asset space.”
Reversing the reversal
Those actions may come quickly. Julie Williams, senior counsel at WilmerHale and former chief counsel and first senior deputy comptroller of the OCC for two decades, noted the OCC’s reversal after Biden took office. In November 2021, it issued an interpretive letter saying banks couldn’t pursue those activities without receiving a written, supervisory “nonobjection” statement from the regulator, a move that prompted the other banking regulators to adopt similar positions.
“My prediction is look at what OCC has already found to be permissible for national banks, and look for [it] to take the wraps off the position that centrally smothered the ability of national banks to take advantage of those positions,” Williams says.
She adds that would simply require the new chief legal counsel to issue another interpretive letter rescinding the earlier position, and could be done “very quickly.” In fact, shortly before this article went to press the OCC released a new interpretive letter that rescinds the Biden-era guidance requiring supervisory nonobjection before national banks engage in digital assets activities.
Crypto bills on the Hill
Given such frequent regulatory reversals, and the distinct possibility that mid-term elections could put Democrats back in charge of key committees impacting crypto, bankers may prefer to see a framework for permissible crypto activities signed into law. And that, too, could happen relatively soon. Last May, the Republican-led House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT 21), a bill clarifying the role of different regulatory agencies with regard to crypto that had the support of 71 Democrats.
Bills have also been introduced to provide a clearer regulatory framework for stablecoins that could be used to facilitate payments in a distributed ledger format, providing additional security and 24/7service, and potentially disintermediating banks. Shortly before this article went to press, the Senate Banking Committee passed the GENIUS Act, a stablecoin bill, with a bipartisan majority.
What could this mean for banks? Currently, very large financial institutions such as BNY Mellon and State Street have started offering crypto-related services such as custody either directly or teaming up with third parties. McLaughlin said those banks are likely to want to expand those offerings, and they have the resources to explore and build different options.
The extent to which retail customers actually want crypto services from their regional and community banks is unclear currently. More traditional banks’ customers tend to be older and less enamored by the latest technology, and it simply may not warrant the effort and expense. Jon Lightman, a partner at ISG, a global technology research and advisory firm, says most banks, should demand emerge for services such as wallets and fiat-currency conversions, will probably choose to white label the services provided by third parties, such as larger banks.
“They’ll want to leverage their brands, without putting themselves at risk,” Lightman says.
Hungry for banking services
Nevertheless, some regional and community banks may see opportunities to capture commercial business of crypto firms, especially if the stigma attached to engaging in such relationships over the last four years starts to fade. McLaughlin says that many of his clients are crypto firms and the list of banks willing to provide bank accounts and other basic banking services to them, especially following the demise of digital asset-friendly banks such as Silvergate and Signature Bank, is very short.
“If you’re an investment fund dealing with crypto, most banks are more than willing to work with you,” he explains. “But if you’re a crypto exchange or wallet provider — essentially acting as a money-services provider in crypto — they have been left out to dry when it comes to banking partners. The industry is hungry for banking partners who will work with them.”
That issue was nearly addressed toward the end of the first Trump administration, when the OCC sought to promulgate a rule to ensure fair access to banking. The issue was originally raised in during the Obama administration when gun dealers and later crypto firms complained to Congressmen about bank examiners allegedly pressuring banks to exit relationships the regulators found objectionable. However, the Trump administration failed to finalize it before Biden’s arrival, and his administration declined to publish the rule.
“It’s likely new leadership at the OCC will turn back to that rulemaking and try to revive it,” said Michael Dawson, a partner at WilmerHale, during the webinar.
Dawson added that the issue had gained momentum recently after a Joe Rogan podcast interview with Marc Andreessen, general partner at venture capital firm Andreessen Horowitz, who said that “many of his companies have been frozen out of the banking system because of crypto.”
In terms of the Federal Reserve, its first enforcement action against a bank involved in crypto indicated it will view banks’ crypto activities through the same AML, BSA, KYC lenses as other banking products and services. In the August 2024 action, the Fed noted deficiencies in Pennsylvania-based Customers Bank’s instant payments services that allowed clients to make tokenized payments over a distributed ledger to other bank customers.
“So as much as the Fed is taking on the fact that digital assets are here, [it] thinks it can be done in the current supervisory framework,” said Yoon Hi Greene, a partner at WilmerHale for the past two years and previously co-acting general counsel at the Federal Reserve Bank of New York and head of its enforcement litigation group.
More generally, whether a bank builds and offers a crypto-related service in-house or instead through a third party fintech, it will have to meet the same high regulatory standards.
“The difference will be whether the bank does all the monitoring and compliance reporting, or relies on the fintech for some of it,” McLaughlin said. “I would expect the bank to have very generous oversight and audit rights and really have a lot to say about what that fintech or crypto company is doing.”
Contributing editor John Hintze is a financial journalist who writes frequently for the ABA Banking Journal.
