US banks say crypto applications for trust charters threaten financial system

US Banks Raise Alarms as Crypto Firms Seek Regulatory Loopholes The traditional banking sector in the United States is growing increasingly apprehensive as cryptocurrency firms make concerted efforts to gain a foothold in the regulated financial landscape. By applying for national trust-bank charters, crypto companies are attempting to sidestep the rigorous oversight and compliance standards that govern conventional banks, a move that has sparked fierce pushback from industry incumbents. The core concern voiced by major U.S. banks is that this regulatory arbitrage by crypto firms poses a fundamental threat to the stability and integrity of the broader financial system. They argue that the unique risks and volatility inherent in the cryptocurrency market could, if left unchecked, spill over and jeopardize the safety of deposits, lending, and other critical banking functions. "Crypto companies are trying to have it both ways - they want the legitimacy and trust associated with a banking charter, but without the stringent regulations and oversight that apply to traditional banks," said the CEO of a top-five U.S. bank. "This is a dangerous gambit that puts the entire system at risk." Historically, the high barriers to entry and stringent regulatory environment have served as a bulwark against excessive risk-taking and systemic threats within the banking sector. By attempting to circumvent these safeguards, crypto firms are viewed as introducing a destabilizing element that could undermine public confidence and financial stability. Moreover, the lack of uniform standards and oversight in the crypto industry has raised concerns about the potential for money laundering, fraud, and other illicit activities to proliferate under the guise of a nationally chartered trust bank. This concern is further amplified by the cross-border and pseudonymous nature of many cryptocurrency transactions. "The crypto world operates by a different set of rules, and we simply can't have that kind of risk profile coexisting within the regulated banking system," warned the former head of banking supervision at the Federal Reserve. As the battle lines are drawn, it remains to be seen whether crypto firms will succeed in their quest for greater regulatory integration or if the established banking powerhouses will ultimately prevail in safeguarding the financial system from the perceived threats posed by the burgeoning cryptocurrency ecosystem. The outcome of this clash will have far-reaching implications for investors, policymakers, and the future of the crypto industry as a whole.