An Analysis of Bank Charters and Selected Policy Issues

An Analysis of Bank Charters and Selected Policy Issues

An Analysis of Bank Charters and Selected
January 21, 2022
Policy Issues
Andrew P. Scott
A bank charter is effectively a business license that is required for depository institutions and
Analyst in Financial
certain financial institutions providing other bank-like services. A financial institution that wants
Economics
to become a bank, trust, savings institution, or credit union can apply for a charter at the state or

federal level from a banking regulator. At the federal level, the Office of the Comptroller of the
Currency (OCC) grants charters. A charter allows a financial institution to perform certain

financial services, including accepting deposits, making loans, and providing a range of fiduciary
services to its customers. While some charters allow banks to do all of these things, others are limited in purpose to allow
only a subset of financial services. The type of charter obtained determines the regulatory framework under which a financial
depository institution operates.
Charters have long been the subject of congressional interest. For example, as the number of banks and bank branches
continues to fall over time due to consolidation and closure, banking regulators and legislators have expressed concerns about
the lack of de novo (i.e., new) charter applicants. Additionally, Congress has discussed the impacts of certain charters,
including limited-purpose charters and the industrial loan company (ILC) charters, on the financial system. In 2016, the OCC
announced the availability of a special purpose charter for financial technology (fintech) firms. The OCC’s authority to issue
such charters met legal challenges, and to date, the special purpose charter option has garnered relatively little interest. In the
case of ILCs, Congress imposed a temporary moratorium on the Federal Deposit Insurance Corporation’s (FDIC’s) granting
of deposit insurance to new ILCs after the 2007-2009 financial crisis and continues to scrutinize ILCs’ special regulatory
treatment. More recently, charters have been a topic of discussion among lawmakers, as cryptocurrency firms are
increasingly seeking national trust charters from the OCC and special purpose state charters in states such as Wyoming and
New York.
The recent interest among fintech firms in pursuing bank charters raises another point of interest for Congress: Which
companies should be considered and regulated as banks? Banking organizations are required to meet a range of specific
regulatory standards, and in return they receive special treatment that differentiates the banking sector from other commercial
business. For example, only banks are allowed to accept deposits and use those funds to make loans to the public.
Additionally, banking organizations enjoy federal backstops, such as deposit insurance from the FDIC and lender-of-last-
resort facilities offered by the Federal Reserve. Further, banks chartered at the federal level can also export interest rates from
the states in which they are chartered, allowing them to lend nationally at rates higher than some states allow. Conversely,
nonbank financial companies, such as payday lenders, may be able to offer loans, but they cannot accept deposits, do not
have broad federal financial safety nets, and are constrained by the lending regulation of each state in which they operate.
Interest in certain chartering policy issues has increased as Congress and bank regulators are grappling with some of the
potential risks that newer technologies, such as cryptocurrency, pose to the banking system. For example, one of the concerns
over increased use of cryptocurrency is the pseudonymous nature of transactions, which make collecting taxes and tracing
illicit financial activity more difficult. Recent legislative debate has centered on the extent to which certain parties that
facilitate cryptocurrency transactions should be subject to reporting requirements for tax and anti-money-laundering
purposes—this was the central debate over a major provision in the Infrastructure Investment and Jobs Act (P.L. 117-58).
Policymakers need to decide the extent to which banking institutions are permitted to participate in cryptocurrency and other
fintech activities and to what extent special purpose banks will be allowed to participate in a greater range of crypto activities
than other banks.
Other risks more directly impact the chartering of banks. For example, in November 2021, the President’s Working Group on
Financial Markets issued a report that recommended that certain issuers of cryptocurrency be regulated as insured depository
institutions. The efficacy of regulating cryptocurrencies such as stablecoins, which peg their value to other assets such as fiat
currency (e.g., the U.S. dollar) as insured depository banks raises policy questions relevant to charters. For example, would a
new bank charter be needed for stablecoin issuers? Would Congress need to pass legislation to authorize the OCC to issue
such a charter and to mandate deposit insurance for all stablecoin issuers? Additionally, is deposit insurance a necessary or
desirable mandate for non-fiat currency? The answers to these questions would directly impact the way new types of banks
are chartered.

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Contents
What Is a Charter? ........................................................................................................................... 1
Charters and Bank Regulators ................................................................................................... 2
Commercial Banks .......................................................................................................................... 4
Application for Bank Charter .................................................................................................... 5
Deposit Insurance Application Process ............................................................................... 7
Membership with the Federal Reserve................................................................................ 8
Organizing Under a Bank Holding Company ..................................................................... 9
Pre-Opening Activities ...................................................................................................... 10
Industrial Loan Companies ............................................................................................................. 11
Current ILC Regulation .................................................................................................... 12
Recent Trends in ILC Charters ......................................................................................... 13
Trust Company and Custody Charters ........................................................................................... 14
National Trust Banks ............................................................................................................... 15
State Custody and Trust Charters ............................................................................................ 16
Wyoming Special Purpose Depository Institutions .......................................................... 17
New York Limited Purpose Trust Company ..................................................................... 17
OCC Proposed Fintech Bank Charters .......................................................................................... 19
OCC Special Purpose National Bank Charter ......................................................................... 19
OCC Proposal for a Payments Charter ............................................................................. 20
Policy Issues for Congress............................................................................................................. 20
De Novo Creation ................................................................................................................... 20
Tailored Regulation or Regulatory Arbitrage? ........................................................................ 21
Recent Use of Trust Charters by Cryptocurrency Firms ......................................................... 23
Stablecoin Issuers as Insured Depository Institutions ............................................................. 24

Figures
Figure 1. De Novo Creation .......................................................................................................... 21

Tables
Table 1. Select Financial Institution Charters .................................................................................. 1
Table 2. Regulatory Jurisdiction for State- and Federally Chartered Banks ................................... 2
Table 3. Regulatory Roles and Chartered Depositories ................................................................... 3
Table 4. Commercial Banks and Savings Institutions ..................................................................... 4
Table 5. 10 States with Greatest Number of State-Chartered Banks ............................................... 5
Table 6. Number of ILCs per State, by Asset Volume .................................................................... 11
Table 7. Regulatory Structure for Banks, ILCs, and Trusts ........................................................... 22
Table 8. Select Bank Cryptocurrency Activities ............................................................................ 24

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Contacts
Author Information ........................................................................................................................ 26

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What Is a Charter?
Financial institutions, like many businesses, need licenses to operate legally. The license for
banks, trust companies, and other special purpose depository institutions is called a charter, and it
allows financial institutions to perform core banking activities such as deposit taking and lending
and to provide fiduciary services to their customers.
Charters are issued by state chartering authorities (usually state bank regulators) or at the federal
level by the Office of the Comptroller of the Currency (OCC).1 Credit unions are also chartered at
the state level by state regulators or by the National Credit Union Administration (NCUA) at the
federal level. The agencies responsible for issuing charters for banks and depository institutions
covered in this report are shown in Table 1.
Table 1. Select Financial Institution Charters
Charters by Type and Chartering Agency
Institution Type
Federal Charter (OCC/NCUA)
State Charter (State Agencies)
Banks
National Bank Charter
State bank charters
Credit unions
National Credit Union Charter
State credit union charters
Thrifts
Federal Thrift Charter
State thrift charters for state
savings banks and savings
associations
Industrial loan companies (ILCs)
n/a (ILCs that accept insured
State charters for ILCs and
deposits require approval by the
industrial banks
Federal Deposit Insurance
Corporation)
Limited-purpose charters (e.g., trust National Bank Charter for Trust
State charters for state-chartered
banks and trust companies)
Companies
trust companies
Special purpose charters
Special Purpose National Bank
State have developed various
Charter
charters for specific institutions,
such as the Wyoming Special
Purpose Depository Institution
Charter
Sources: Office of the Comptroller of the Currency (OCC), Comptroller’s Licensing Manual: Charters, December
2021, p. 8, https://www.occ.gov/publications-and-resources/publications/comptrollers-licensing-manual/files/
charters.pdf; Bank Policy Institute, “Core Concept #5: Types of Banks and Their Charters,” p. 22,
https://bpi.com/wp-content/uploads/2021/02/Bank_Regulation_101_2021_Presentation-Concept-5.pdf; OCC,
“Exploring Special Purpose National Bank Charters for Fintech Companies,” https://www.occ.gov/topics/
supervision-and-examination/responsible-innovation/comments/pub-special-purpose-nat-bank-charters-
fintech.pdf; and Wyoming Division of Banking, “Special Purpose Depository Institutions,”
http://wyomingbankingdivision.wyo.gov/home/areas-of-regulation/laws-and-regulation/special-purpose-depository-
institution.
Note: Not all states offer all the listed charter types. For example, six states currently offer ILC charters.
Charters have long been the subject of congressional interest. For example, as the number of
banks and bank branches continues to fall over time due to consolidation and closure, banking

1 For example, there are two types of commercial banks: state-chartered banks and national banks. State governments
issue charters for state-chartered banks, and the OCC issues charters for national banks. For more on how these banks
are regulated, see CRS Report R44918, Who Regulates Whom? An Overview of the U.S. Financial Regulatory
Framework, by Marc Labonte; and CRS In Focus IF11055, Introduction to Bank Regulation: Supervision, by Marc
Labonte and David W. Perkins.
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regulators and legislators have expressed concerns about lack of de novo charter—a charter for a
newly created institution—applications and approvals. Furthermore, Congress has long examined
the impacts of special purpose charters and industrial loan company (ILC) charters on the
financial system. More recently, financial technology (fintech) firms are increasingly seeking
national banking and trust charters from the OCC and special purpose state charters in states such
as Wyoming. Given that many of these financial institutions seeking special purpose charters are
state-regulated nonbank financial companies, this could change the landscape for federal
prudential regulation and give Congress and federal policymakers a regulatory framework for a
variety of new financial services companies.
While there are several types of institutions that receive charters, this report examines four
charters that have been subject to significant congressional interest in recent years:
1. Commercial banks and thrifts
2. ILCs
3. Trust and custody banks
4. The OCC Special Purpose charter for nondepository fintech companies
Each section provides a brief overview of the type of company that can be granted a charter and
the regulatory requirements for each charter, followed by any relevant policy issues. In general,
there is a policy debate about whether allowing fintech firms into the bank regulatory regime by
issuing them these charters would make them and the financial system safer or more risky—
potentially putting taxpayers at risk. This policy discussion is detailed where relevant, particularly
in the ILC charter and limited purpose charter sections.
Charters and Bank Regulators
Before discussing the features and differences between various bank charters, it is helpful to
understand what the chartering options for banks are, because the type of charter an institution is
granted has implications for how it is regulated and supervised, including which agency is its
primary federal regulator, as shown in Table 2.
Table 2. Regulatory Jurisdiction for State- and Federally Chartered Banks
Charter Type
State Regulator
Primary Federal Regulator
State charter, member of Federal
State banking agency
Federal Reserve
Reserve
State charter, nonmember
State banking agency
Federal Deposit Insurance
Corporation
Federal charter
n/a
Office of the Comptroller of the
Currency
Source: CRS analysis.
Notes: All national banks are also members of the Federal Reserve.
Banks can be chartered at the state level by a state chartering authority or at the federal level by
the OCC. If the bank is state-chartered, it then must decide whether it wants to become a member
of the Federal Reserve or not. If it joins the Federal Reserve, then the bank is regulated and
supervised by the state banking authority and also by the Federal Reserve. If it does not join the
Federal Reserve, the primary federal regulator and supervisor is the Federal Deposit Insurance
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Corporation (FDIC) instead of the Federal Reserve.2 If the bank is chartered at the federal level, it
is called a national bank, and it only has a federal regulator, the OCC. (National banks are
required to be members of the Federal Reserve System.) In addition, institutions that seek deposit
insurance must be approved by the FDIC.
National banks are chartered by the OCC pursuant to the authorities granted under the National
Bank Act of 1864.3 National banks include commercial banks, limited purpose trust banks, and
special purpose banks, such as credit card banks.4 National banks are required to become
members of the Federal Reserve System. State agencies charter state banks pursuant to their own
constitutional authorities. State banks can choose to become members of the Federal Reserve.
Generally, deposit insurance from the FDIC is required for commercial banks chartered at the
state or national level.5
In some circumstances, a financial institution may seek a particular charter because it prefers a
particular regulator over others. As discussed later, this is one of the central debates around the
recent use of the OCC’s Special Purpose National Bank Charter. The various roles of each federal
regulator is generally summarized in Table 3.
Table 3. Regulatory Roles and Chartered Depositories
Agency
Main Roles
Insures the deposits of all depository institutions approved for federal deposit insurance.
Serves as primary federal regulator for and, together with the respective chartering state
authority, supervises state-chartered institutions (state-chartered banks and savings
associations) that are not members of the Federal Reserve.
FDIC
Maintains backup supervisory responsibility for institutions for which the Federal Reserve
and the OCC are the primary federal regulators.
Acts as receiver for all failed insured banks and savings associations and may be appointed to
resolve nonbank financial companies if their failure would have serious adverse effects on
U.S. financial stability and other statutory requirements are met.
Serves as primary federal regulator for and, together with the respective chartering state
authority, supervises state-chartered banks that are members of the Federal Reserve, as well
as bank and financial holding companies (and certain subsidiaries) and savings and loan
Federal Reserve
holding companies.
Supervises other firms designated as systemically significant by the Financial Stability
Oversight Council and other entities pursuant to the Dodd-Frank Act.
Charters and serves as primary federal regulator for and supervises national banks and
OCC
federal savings associations.
Charters state banks and savings associations, regardless of whether the institution is a
member of the Federal Reserve.
State agencies*
Together with the respective primary federal regulator, supervises state-chartered
institutions and certain holding companies.

2 Most commercial banks are state non-member banks, regulated and supervised by the FDIC.
3 12 U.S.C. §21 and 12 C.F.R. §5.20.
4 Under Title 12, Section 5.20, of the Code of Federal Regulations: “The OCC charters a national bank under the
authority of the National Bank Act of 1864, as amended, 12 U.S.C. §1 et seq. The bank may be a special purpose bank
that limits its activities to fiduciary activities or to any other activities within the business of banking. A special purpose
bank that conducts activities other than fiduciary activities must conduct at least one of the following three core
banking functions: receiving deposits; paying checks; or lending money. The name of a proposed national bank must
include the word ‘national.’”
5 State-chartered banks typically have FDIC deposit insurance even in states where it is not statutorily required.
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Source: FDIC, Applying for Deposit Insurance—A Handbook for Organizers, December 2019, p. 11,
https://www.fdic.gov/regulations/applications/depositinsurance/handbook.pdf.
Notes: A list of the state bank supervisors can be found at https://www.csbs.org/state-bank-directory.
The following section details commercial bank charters, a charter type that allows an institution
to provide a wide range of bank services and is typically held by institutions that are most
commonly recognized as banks by members of the public (i.e., an institution that takes deposits,
makes loans, and processes payments). This group of banks will be treated as a baseline for the
general charter application process and regulatory requirements applicable to the banking
industry. Later sections will examine less commonly familiar types of bank charters that differ
from this baseline in certain important ways that raise particular policy questions.
Commercial Banks
Broadly speaking, commercial banks and savings institutions (also known as thrifts) are full-
service banks offering many types of checking and savings accounts (including on-demand
deposit accounts), many loans types with relatively few restrictions, and payment processing
services. They are subject to the general bank regulatory framework, including that they are
required to have deposit insurance and any parent company that owns one is considered a bank
holding company under the Bank Holding Company Act (BHCA; P.L. 84-511). They and their
parent holding companies are generally prohibited from engaging in nonfinancial commercial
activities. In addition, they are generally permitted to access the Federal Reserve’s payment
processing and settlements systems.
As of September 30, 2021, there were 4,914 commercial banks and savings institutions insured
by the FDIC. As shown in Table 4, 64% of these institutions (3,171) are state-chartered banks
that are not members of the Federal Reserve; 15% (724) are state-chartered member banks; and
the remaining 21% (1,019) are national banks and thrifts chartered by the OCC.
Table 4. Commercial Banks and Savings Institutions
Organized by Primary Federal Regulator
Number of
Total Assets
Domestic Deposits
Primary Regulator
Institutions
($ million)
($ million)
FDIC (state-chartered, nonmember)
3,171
4,206,831
3,499,218
Federal Reserve (state-chartered member)
724
3,962,495
3,044,646
OCC (nationally chartered)
1,019
15,082,333
11,090,022
Total
4,914
23,251,659
17,633,886
Source: FDIC, Quarterly Banking Profile, September 30, 2021, p. 25, https://www.fdic.gov/analysis/quarterly-
banking-profile/qbp/2021sep/qbp.pdf#page=25.
Notes: FDIC-insured institutions.
Most commercial banks are smaller institutions (generally, less than $10 billion in assets), and
many smaller banks are located in rural areas. For example, of the nearly 4,000 state-chartered
banks and thrifts in the United States, over a quarter are chartered in Illinois, Iowa, Texas,
Minnesota, and Missouri, as shown in Table 5.
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Table 5. 10 States with Greatest Number of State-Chartered Banks
List of State-Chartered Institutions as of January 2022
State
Number of Institutions
Illinois
260
Iowa
242
Texas
214
Minnesota
206
Missouri
205
Kansas
178
Nebraska
141
Oklahoma
137
Wisconsin
132
Georgia
121
Source: FDIC, Institution Directory, data as of January 11, 2022, https://www7.fdic.gov/idasp/content/
Institutions2.zip.
Application for Bank Charter6
A de novo charter is a charter for a newly formed bank. There are a few key decisions a financial
institution needs to make before applying for a de novo charter. Generally, a financial institution
must decide, among other things:
 What type of corporate structure is preferred? There are three main options: a C
corporation, an S corporation, or a limited liability company. These structures
differ in the number of permissible shareholders, types of capital distributions,
and tax treatment.7
 What geographic presence is planned? Small banks often serve local geographic
areas and easily identifiable customer bases, and larger institutions often serve
wider geographic areas and may define market segments in broader terms. De
novo institutions must also consider their future obligations under the
Community Reinvestment Act (CRA; P.L. 95-128), including the needs of low-
and moderate-income geographies and individuals in the areas they serve. The
institution’s intended geographic presence may influence the desire for a state or
federal charter.
 What are the banks regulatory requirements? Before an application for a charter
is filed, an institution often engages with the prospective regulators to receive

6 While each chartering agency has its own rules and standards, the OCC lists things it generally considers in reviewing
a charter application in its licensing manual, which fall under these broad categories. See OCC, Comptroller’s
Licensing Manual: Charters, December 2021, p. 8, https://www.occ.gov/publications-and-resources/publications/
comptrollers-licensing-manual/files/charters.pdf.
7 For example, C corporations are allowed an unlimited number of shareholders, while S corporations are restricted by
Internal Revenue Service regulations as to the number of shareholders. C corporations pay taxes on their income
directly, while their shareholders are taxed on cash dividends. Alternatively, S corporations pass through taxable
income or losses directly to shareholders, who report those earnings on individual tax returns. Rules for limited liability
companies are provided in state law and FDIC rules and regulations.
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guidance regarding access to capital, organizing boards of directors, and other
regulatory expectations.8 Regulators can also provide feedback regarding
potential issues related to specific charter proposals. For example, regulators can
identify issues with initial capital adequacy or the management’s business plan.
Once bank leadership has determined the answers to those questions, the aspiring applicant has a
few general steps, laid out below, before approval is obtained.
Federal and state agencies generally use the Interagency Charter and Federal Deposit Insurance
Application9 to collect information for and evaluate a de novo charter and/or deposit insurance
application. While there are some differences in what is required and evaluated across different
commercial bank charter types, most types of commercial banks can begin their applications with
the interagency application, which gives a general sense of what commercial banks are required
to consider. For example, an institution must first identify the type of charter it is seeking; the
chartering agency it seeks approval from; the insurance fund it is applying for insurance from;
any special focus areas (e.g., community development, cash management, trust bank, bankers’
bank, credit card bank); and whether it is applying to be a member of the Federal Reserve
System. The application’s basic structure covers the following areas:
 Overview of institution’s business model, activities, public and private offerings,
and the articles of association or incorporation and bylaws
 Description of the management, including directors, executives, officers, board
members, conflicts of interest, and stock benefit plans
 Details of the institution’s capital plans, including capital to be raised, class and
amount of stock to be issued, capital adequacy projections, and corporate tax
status
 Description of how the institution meets the needs of the community, consistent
with its business plan, and a separate plan to meet obligations pursuant to the
CRA
 Description of the premises and fixed assets, security plans to protect property,
plans to establish branches, and identification of the main office
 Records of the information systems used, including a description of the physical
and logical components of security systems used
 Other information, such as functions to be outsourced, fidelity coverage, a plan to
comply with the Bank Secrecy Act, and the organization’s planned expenses
State Chartering Process
To give a sense of what a state-chartered application looks like, we can look at the process set up by the Illinois
Department of Financial and Professional Regulation, the state bank regulator responsible for chartering state
banks in Illinois, the state with the most state-chartered banks. To form a state bank in Illinois, a financial
institution must complete an application for a permit to organize a state bank. The State of Illinois uses the
Interagency Charter and Federal Deposit Insurance Application, discussed above. In addition to the application,
any incorporator, proposed directors, senior executive officers, and proposed shareholders that will own or
control 10 percent or more of the institution’s stock must submit a form for releasing personal information and
obtain fingerprint scans.

8 Partnership for Progress, Minority Depository Institution Program, “De Novo Bank Application Process,”
https://www.fedpartnership.gov/bank-life-cycle/start-a-bank/de-novo-bank-application-process.
9 The most up-to-date application can be found at https://www.fdic.gov/formsdocuments/f6200-05.pdf.
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As mentioned, national commercial banks are required to have deposit insurance and become
Federal Reserve System members. States generally require state commercial banks to have
deposit insurance, but they can choose whether or not to be Federal Reserve member banks.
Banks seeking deposit insurance need to apply to the FDIC for approval. Further, if an institution
seeks to become a member bank, it will need approval from the Federal Reserve. If the institution
seeks to organize under a holding company, it will need further approval from the Federal
Reserve. These processes are detailed below. In any of these scenarios, the process for applying is
effectively the same, and institutions will use the Interagency Charter and Federal Deposit
Insurance Application to start and work with the relevant regulators to meet specific criteria.
Deposit Insurance Application Process
Deposit insurance is part of the federal safety net backstopping the banking system. It protects
depositors if a bank fails (it does not insure the bank against failure) and helps prevent bank runs
by providing consumers with the confidence that their money will be available during periods of
economic or financial stress. All Federal Reserve members and all national banks and thrifts
(chartered by the OCC) must have deposit insurance, pursuant to the Federal Deposit Insurance
Act (12 U.S.C. §1811 et seq.). In addition, states generally require state-chartered commercial
banks to be insured by the FDIC.10 This gives the FDIC considerable influence over which
institutions receive charters.
The FDIC’s handbook for de novo institutions seeking to apply for deposit insurance provides a
summary of the various requirements an institution should fulfill. This includes pre-filing
activities, the application process, and pre-opening activities.
The FDIC encourages de novo institutions to meet with FDIC staff and other regulators before
applying for deposit insurance. As a general rule, pre-filing meetings are attended by the FDIC,
the chartering authority, and, as appropriate, the Federal Reserve (either as primary federal
regulator or as holding company supervisor). FDIC representatives generally include staff from
the regional office and field office for the location in which the institution would be
headquartered. Staff from the FDIC’s Washington office may also attend. During the meeting, the
participating agencies discuss regulatory expectations and provide an overview of the application
process, including general timelines for processing. Staff may also address special information
needs and other matters specific to the application so that the applicant can include appropriate
information in the submission. In addition, the FDIC has established a voluntary process for the
receipt and review of draft deposit insurance proposals.11
Section 5 of the Federal Deposit Insurance Act (12 U.S.C. §1815) requires any depository seeking
federal deposit insurance to file an application with the FDIC. The application form used by the
FDIC is the Interagency Charter and Federal Deposit Insurance Application referenced above.
The statutory factors (12 U.S.C. §1816) to be considered in the application are:12
 the depository institution’s financial history and condition,
 the adequacy of the depository institution’s capital structure,

10 With respect to full-service banking institutions, examples of uninsured banks are rare, but one notable example is
the Bank of North Dakota, which is owned, administered, and insured by the State of North Dakota. In addition, some
trusts and limited purpose banks may not seek deposit insurance for various reasons explored later in this report.
11 The review process for draft proposals is covered in 2018 guidance from the FDIC, which can be found at FDIC,
“Review Process for Draft Deposit Insurance Proposals,” December 6, 2018, https://www.fdic.gov/news/financial-
institution-letters/2018/fil18082.html.
12 FDIC, Statements of Policy, https://www.fdic.gov/regulations/laws/rules/5000-3000.html.
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 the depository institution’s future earnings prospects,
 the general character and fitness of the depository institution’s management,
 the risk presented by such depository institution to the Deposit Insurance Fund,
 the convenience and needs of the community to be served by such depository
institution, and
 whether the depository institution’s corporate powers are consistent with the
purposes of the Federal Deposit Insurance Act.
The FDIC’s goal is to act on applications within four months after being accepted as substantially
complete.13 Other timelines noted in the FDIC’s handbook for organizers include the following:
 “Within three business days of receipt of an application for deposit insurance, the
FDIC will provide a written response to the applicant acknowledging receipt and
requesting publication of the filing in a local newspaper, if publication has not
already occurred.”
 “In most cases, within 30 days of receipt of the application, the FDIC will
provide a letter to the applicant noting either that the application is substantially
complete and accepted for processing, or that additional information is needed.”14
 “If the application is substantially complete, a field investigation … should be
completed within 60 days of the date the application was deemed substantially
complete and accepted for processing.”
 “Following the field investigation process, the FDIC will complete the review
process, notify the applicant in writing of any proposed non-standard conditions,
seek the applicant’s written concurrence to the non-standard conditions, and
finalize the recommendation for action … within 30 days of the FDIC’s prior
communication.”
Under Filings Procedures regulations,15 the FDIC takes into account an institution’s potential
compliance with the CRA.16 Further, certain parts of filings may be subject to public notice,
public comment periods, and hearings.17
Membership with the Federal Reserve
If a bank chooses to become a national bank, chartered by the OCC, then membership with the
Federal Reserve is required pursuant to Section 2 of the Federal Reserve Act (12 U.S.C. §222).

13 According to the FDIC’s handbook for deposit insurance applications, “an application is considered substantially
complete when the FDIC has the necessary information to fully consider each of the applicable statutory factors and
any other regulatory requirements. In general, an application will be deemed substantially complete if an applicant has
provided the information required in [the application], and the submitted information does not raise significant follow-
on questions. Significant follow-on questions may arise when, for example, inconsistencies exist between sections of
the application, the business plan is lacking in certain respects, concerns are identified with respect to the proposed
corporate structure or relationships, potential concerns are raised in the review of required [Interagency Biographical
and Financial Report] filings, or other aspects of the proposal require further details in order for the FDIC to assess the
risks presented and any mitigating factors.”
14 A letter to the applicant for a nonbank or non-community-bank proposal may take up to 45 days to issue depending
on the matters presented.
15 12 C.F.R. §303, for example.
16 12 C.F.R. §303.1(a).
17 12 C.F.R. §§303.7- 303.10.
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State-chartered banks may choose to become Federal Reserve members once they meet certain
requirements, laid out below. More than one-third of U.S. commercial banks are Federal Reserve
members.
A member bank is eligible to vote for and become a director of its regional Reserve Bank, and it
must subscribe to capital stock in its Reserve Bank in an amount equal to 6% of its combined
capital and surplus (excluding retained earnings).
State banks applying for Federal Reserve System membership have to file their applications in
accordance with Title 12, Section 262.3, of the Code of Federal Regulations. Upon approval they
would join the Reserve Banks in their respective regions. Title 12, Section 208, lays out the
Federal Reserve’s general membership requirements. The general factors18 considered in
approving applications for membership include:
 financial conditions and management,
 capital adequacy,
 convenience and needs of the community, and
 corporate powers consistent with the purposes of the Federal Reserve Act.
Sometimes, the Federal Reserve will require a pre-membership examination. The criteria for
waiving this examination is laid out in Federal Reserve guidance.19
Organizing Under a Bank Holding Company
As mentioned, a bank may choose to organize under a holding company. Most banks are owned
by a specific kind of holding company called a bank holding company (BHC). A BHC y is
defined as “any company which has control over any bank” pursuant to the BHCA.20 (Similarly,
savings associations, or “thrifts,” can be owned by savings and loan or thrift holding companies.)
According to one commentator, BHCs are formed “primarily to facilitate additional nonbanking
activities, issue capital not for banks, and/or greater corporate and operational flexibility.”21 One
reason a smaller bank may pursue a BHC is the Federal Reserve’s Small Bank Holding Company
Policy Statement, which allows small BHCs (under $3 billion in total consolidated assets) to
incur various debt in amounts greater than larger BHCs are allowed.22 This debt can finance
acquisitions or stock repurchases or can serve as capital for a bank subsidiary. According to the
Federal Reserve, as of year-end 2020, there were over 3,600 BHCs with more than $24 trillion in
assets. Some BHCs have subsidiaries that engage in nonbank financial activities, such as
underwriting and dealing in certain types of securities, and these BHCs are also categorized for

18 12 C.F.R. §208.4(b).
19 Federal Reserve, “SR 15-11/CA 15-9: Examinations of Insured Depository Institutions Prior to Membership or
Merger into a State Member Bank,” October 13, 2015, https://www.federalreserve.gov/supervisionreg/srletters/
sr1511.htm.
20 12 U.S.C. §1841(a)(1). The statute states further: “(2) Any company has control over a bank or over any company if-
(A) the company directly or indirectly or acting through one or more other persons owns, controls, or has power to vote
25 per centum or more of any class of voting securities of the bank or company; (B) the company controls in any
manner the election of a majority of the directors or trustees of the bank or company; or (C) the Board determines, after
notice and opportunity for hearing, that the company directly or indirectly exercises a controlling influence over the
management or policies of the bank or company” (12 U.S.C. §1841(a)(2)).
21 Chip Mac Donald, “Do Banks Need Holding Companies?,” Jones Day, July 2017, https://www.jonesday.com/en/
insights/2017/07/do-banks-need-holding-companies.
22 The Federal Reserve Board issued an interim final rule expanding the applicability of the policy to institutions with
less than $3 billion in total consolidated assets. The notice of the interim final rule can be found at
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180828a.htm.
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regulatory purposes as financial holding companies. However, a BHC may generally not operate
nonfinancial commercial businesses—companies that produce or sell nonfinancial goods and
services—unless allowed under a specific exemption under the BHCA. BHCs are subject to
primary regulatory oversight by the Federal Reserve. Any holding company that owns a bank
with a commercial bank charter and FDIC deposit insurance is required to be a BHC.
There are also holding companies that own special purpose banks—such as ILCs and trust
banks—that are not required to be BHCs (provided they meet certain criteria); thus they are not
subject to the same oversight by the Federal Reserve. This is the subject of much policy
consideration covered in the “Industrial Loan Companies” and “Tailored Regulation or
Regulatory Arbitrage?” sections below.
Pre-Opening Activities
Once conditional approval is received, there are a few final steps to complete before a depository
can open. For example, the OCC Licensing Manual provides a checklist of procedures for
organizers to complete in order to open the bank:
1. Capitalize the bank. The first is for the organizing directors to take action to
capitalize the bank and comply with the appropriate securities disclosure rules
pursuant to Title 12, Part 16, of the Code of Federal Regulations. De novo banks
organizing under holding companies face separate capitalization rules from the
Federal Reserve.
2. Organize the bank. Within 30 days of receiving preliminary conditional
approval to operate, the bank organizers must establish a process for maintaining
records of official meetings and execute the articles of association and applicable
bylaws of the organization.
3. Establish management and site. The bank organizers must select the
management team and directors and finalize the arrangements for the bank’s
physical location.
4. Convene shareholders and directors. The bank organizers must hold necessary
meetings to fix the number directors and elect the chairman, chief executive
officer, and other officers.
5. Pre-opening examination. OCC bank examiners conduct a pre-opening
examination to determine whether all substantive issues, including risk
management concerns, have been addressed adequately.
6. Membership to Federal Reserve application (optional for state chartered
banks). At least four weeks before the projected opening date, a national bank or
state member bank must submit an application for Federal Reserve membership.
7. Chartering and commencing business. Upon resolving any outstanding
matters, confirming receipt of approval for deposit insurance, and (if applicable)
Federal Reserve membership, the bank may open for business.
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Industrial Loan Companies23
Over the past several years, a number of technology firms have sought a less common type of
state charter called an industrial loan company (ILC) charter.24 ILCs are an alternative charter for
firms looking to offer a wide range of banking and other financial services. ILCs are permitted to
make a wide array of loan types, offer most types of deposit accounts, and open branches across
state lines. Except for a federal law that technically restricts their ability to offer certain “on
demand” checking and savings accounts (discussed below), they are similar to commercial banks.
As is the case with traditional banks, an ILC may be owned by a parent holding company.25
Unlike the parent company of banks, an ILC parent is not a BHC under the BHCA and therefore
can be a nonfinancial company.
Currently, laws in only a handful of states offer ILC charters: California, Hawaii, Indiana,
Minnesota, Nevada, and Utah.26 The current ILCs are listed by state in Table 6.
Table 6. Number of ILCs per State, by Asset Volume
Assets Estimated as of September 2021
State
Number of ILCs
Assets
Utah
16
$199.69 billion
Nevada
3
$11.71 billion
California
3
$1.11 billion
Hawaii
1
$0.556 billion
Indiana
1
$0.12 billion
Minnesota
1
$0.25 billion
Source: CRS analysis of regulator data provided from the FDIC, state bank supervisors, and institutional
websites.
As of September 2021, there were 25 FDIC-insured ILCs chartered in six states, including 16 in
Utah.27 These ILCs collectively held around $210 billion in assets, less than 1% of the total
amount held by all insured depositories.28 Some of these ILCs are owned by parent companies
that are primarily involved in finance, including large organizations such as UBS (a non-U.S.
bank) and Sallie Mae (a student loan company). Nonfinancial commercial companies, including
Toyota and BMW, own others, largely to provide financing to customers buying their commercial
products. Some ILCs are small, niche lenders. For example, Medallion Bank specializes in loans

23 For more detail on industrial loan companies, see CRS Report R46489, Industrial Loan Companies (ILCs):
Background and Policy Issues, by David W. Perkins.
24 These may also be called industrial loan corporation or industrial bank charters.
25 FDIC, “Parent Companies of Industrial Banks and Industrial Loan Companies,” 85 Federal Register 17771-17773,
March 31, 2020.
26 These states were permitted to grandfather existing industrial banks and continue to charter new industrial banks
under the Competitive Equality Banking Act (P.L. 100-86). Colorado was also grandfathered, but the state has no
active industrial banks and has since repealed its industrial bank statute. See FDIC, “Parent Companies of Industrial
Banks and Industrial Loan Companies,” 85 Federal Register 17773, March 31, 2020.
27 See CRS Report R46489, Industrial Loan Companies (ILCs): Background and Policy Issues, by David W. Perkins.
28 FDIC, Quarterly Banking Profile: First Quarter 2020, https://www.fdic.gov/bank/analytical/qbp/2020mar/
qbp.pdf#page=1; and CRS calculations.
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for taxi cab “medallions”—licenses to operate taxis issued by large cities—and EnerBank is
owned by a home construction company and makes construction loans.
Title 7, Chapter 8, of Utah’s state code is an illustrative example of the chartering process for an
ILC. It states that an ILC must organize as a corporation (Title 16, Chapter 10a, Utah Revised
Business Corporation Act) or as an LLC (Title 48, Chapter 3a, Uniform Limited Liability
Company Act). Further, the institution is authorized to receive and hold deposits and is required
to obtain FDIC deposit insurance. Section 16 of Title 7 states that ILCs must register with the
Utah Department of Financial Institutions, which sets forth the rules that Utah ILCs are required
to follow pertaining to depositors, creditors, and the financial system.29 One of Utah ILC’s
requirements is a limitation on loans to a single borrower, which is capped at 15% of the ILC’s
total capital.30
Current ILC Regulation
In general, the regulation of banks and ILCs, where it relates directly to the insured depository, is
similar.31 The Federal Deposit Insurance Act (P.L. 81-797) defines state bank to include ILCs.32
As with any state bank that is not a member of the Federal Reserve, the FDIC is the primary
federal regulator of ILCs and supervises them along with the chartering state banking agency for
safety and soundness (e.g., capital standards) as well as compliance with federal consumer
protection, community reinvestment, and anti-money-laundering laws.33
FDIC regulation of ILCs and state nonmember banks is similar in many ways, but there is a key
distinction regarding the regulation of the parent holding company. In 1987, Congress passed the
Competitive Equality Banking Act (CEBA; P.L. 100-86). CEBA largely shaped the current
regulatory framework and resulting policy debates related to ILCs, mainly because it exempted
ILCs from the definition of bank in the BHCA (P.L. 84-511). As a result, parent companies that
control ILCs are not considered BHCs and thus are not subject to the general prohibition against
operating commercial enterprise or to Federal Reserve supervision. In short, the CEBA exception
from the BHCA definition of bank allows a commercial firm to own or control a bank.
To qualify for the BHCA exemption, ILCs cannot offer demand deposits (i.e., checking accounts
or other deposits that the depository institution must generally make available to the depositor for
withdrawal within less than seven days’ notice).34 Instead, ILCs generally offer negotiable order
of withdraw (NOW) accounts. NOW accounts are not considered demand deposits, because the
ILC reserves the right to require seven days’ notice or more to transfer the funds.35 In practice,
ILCs may choose to make funds available upon request and not avail themselves of the allowable
seven days. Thus, a NOW account may function as a checking account from the perspective of an

29 The Utah Division of Banking website can be found at https://dfi.utah.gov/.
30 Utah Code Ann. §7-8-20.
31 For more information on bank regulation, see CRS Report R44918, Who Regulates Whom? An Overview of the U.S.
Financial Regulatory Framework, by Marc Labonte.
32 12 U.S.C. §1813(a)(2).
33 FDIC, “Parent Companies of Industrial Banks and Industrial Loan Companies,” 85 Federal Register 17771-17773,
March 31, 2020.
34 12 C.F.R. §204.2(b)(1).
35 12 C.F.R. §204.2(b)(3).
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ILC customer, although it is not technically a demand deposit account.36 Like other types of
deposits, NOW accounts are FDIC insured.
Separation of Banking and Commerce
The United States has historically adopted policies to separate banking and commerce. Generally,
this is because a bank owned by a commercial business could act in a way that benefits the
commercial parent rather than operating in a safe and sound manner. For example, a bank
subsidiary could make risky loans to the parent’s customers. To the extent a bank’s health was
jeopardized by these activities, federal financial safety nets intended for the banking system
would effectively be extended to support commercial business.
FDIC Rulemaking on Parent Companies of ILCs
In February 2021, the FDIC issued a final rule that requires certain conditions and commitments
for each deposit insurance application approval as well as other approvals that would result in an
insured ILC becoming a subsidiary of a company that is not subject to Federal Reserve
supervision. This rulemaking effectively codifies the way that the FDIC already approved ILC
applications. The rule imposes, among other things, commitments to submit annual reports to the
FDIC, restrictions on the ILC’s board of directors and senior executives, and a commitment to
maintain the ILC’s capital and liquidity. The rule became effective April 1, 2021.37
Recent Trends in ILC Charters
Over the past few decades, policymakers have expressed concerns over the possibility that certain
large retailers were attempting to establish or acquire ILCs. In response, the FDIC imposed an
official moratorium on ILC approvals for deposit insurance from July 2006 to January 2008.38
The industry shrunk following the 2007-2009 financial crisis for numerous reasons, including
another moratorium (discussed below), this one imposed by Congress in the Dodd-Frank Wall
Street Reform and Consumer Protection Act (P.L. 111-203). Companies such as Goldman Sachs,
Morgan Stanley, and General Motors converted their ILCs to commercial banks during the crisis
and became BHCs. Other ILCs voluntarily closed, including those owned by GE and Target, and
two small ILCs failed.39 Since the aforementioned moratoria have ended and the financial crisis
has passed, there have been recent indications of a resurgence of interest in establishing ILCs,
including among technology-focused companies.
Concerns over ILCs led Congress in July 2010 to mandate in Section 603 of the Dodd-Frank Act
a moratorium on granting deposit insurance to new ILCs.40 After this mandatory moratorium

36 ICBA, Industrial Loan Companies: Closing the Loophole to Prevent Consumer and Systemic Harm, March 2019, pp.
5-6, https://www.icba.org/docs/default-source/icba/advocacy-documents/reports/ilc-white-paper.pdf.
37 FDIC, “Parent Companies of Industrial Banks and Industrial Loan Companies,” 86 Federal Register 10703-10714,
February 23, 2021.
38 FDIC, “FDIC Extends Moratorium on Industrial Loan Company (ILC) Applications by Commercial Companies for
One Year; Will Move Forward on Applications from Financial Companies,” January 31, 2007, https://archive.fdic.gov/
view/fdic/2982.
39 James R. Barth and Yanfei Sun, A New Look at the Performance of Industrial Loan Corporations, June 15, 2018, pp.
9-10, https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID3295336_code117609.pdf?abstractid=3197316&mirid=1.
40 Kobi Kastiel, “Dodd-Frank Moratorium Ends on Bank Charters for Commercial Firms,” Harvard Law School Forum
on Corporate Governance, September 8, 2013, https://corpgov.law.harvard.edu/2013/09/08/dodd-frank-moratorium-
ends-on-bank-charters-for-commercial-firms/.
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ended in July 2013, the FDIC did not approve any new ILC applications for over six years until
March 17, 2020. However, in the past few years, some notable companies have submitted
applications for ILC charters and FDIC insurance, including Nelnet, Square, Rakuten, AmeriNat
Bank, Interactive Bank, and SoFi.41 All of these companies have existing nonbank financial
enterprises, and several have substantial commercial operations. SoFi—which withdrew its ILC
application for deposit insurance in 2017—was granted conditional approval from the OCC to
open a full-service commercial bank in 2020,42 and in January 2022, SoFi received conditional
approval to form a bank holding company and acquire Golden Pacific Bank, NA.43
The prolonged period without new ILC approvals ended on March 17, 2020, when the FDIC
approved two ILCs—Nelnet and Square—for deposit insurance. Nelnet’s ILC allows the
organization to expand its student lending and take deposits.44 Square’s ILC allows the
organization to increase loans to, and accept deposits from, its customers.45 In Utah, as of August
26, 2021, there were five ILC applications pending approval.46
Trust Company and Custody Charters
Trust companies have a different business model than that of commercial banks. Whereas
commercial banks focus on taking deposits, paying checks, and making loans, trust companies
primarily administer trusts and estates. This means they act on behalf of a person or business (or
possibly on the behalf of a third party, such as an heir) that has entrusted them to manage assets.
They make money by effectively charging management fees for overseeing the assets that have
been assigned to them by clients or by taking a percentage of the assets once a trust is transferred
to a third party. Trust companies can offer a range of services in addition to managing a trust,
such as wealth and asset management services, brokerage services, and financial and estate
planning services. Another important service they provide is custody and safekeeping of assets,
and this has created some recent interest among fintech companies, particularly companies
involved in cryptocurrency services, as discussed below.
Crypto Custodial Services at Commercial Banks
One of the ways the banking system interacts with financial technology, such as digital assets and cryptocurrency,
is through what is called custody services. Banks can provide custody services, which include settlement,
safekeeping, and reporting—as opposed to issuing, marketmaking, or trading—of marketable securities and cash.
One example of how this works can be found in U.S. Bank, which recently announced that it is offering a
cryptocurrency custody service in partnership with the New York Digital Investment Group.47 In December 2021,
WisdomTree, an asset manager, named U.S. Bank as the custodian for shares in its Bitcoin trust.

41 FDIC, “Bank Application Action Search,” https://www.fdic.gov/regulations/applications/actions.html.
42 OCC, “Office of the Comptroller of the Currency Conditionally Approves SoFi’s Application to Establish a National
Bank,” October 28, 2020, at https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-141.html.
43 OCC, “OCC Conditionally Approves SoFi Bank, National Association,” January 18, 2022, at https://www.occ.gov/
news-issuances/news-releases/2022/nr-occ-2022-4.html.
44 FDIC, “Statement by FDIC Chairman Jelena McWilliams on Nelnet Bank,” press release, March 18, 2020,
https://www.fdic.gov/news/speeches/spmar1820a.html.
45 FDIC, “Statement by FDIC Chairman Jelena McWilliams on Square Financial Services,” press release, March 18,
2020, https://www.fdic.gov/news/speeches/spmar1820.html.
46 Utah Department of Financial Institutions, “New Charters,” August 26, 2021, https://dfi.utah.gov/general-
information/application-status/.
47 U.S. Bank, “U.S. Bank Announces New Cryptocurrency Custody Services for Institutional Investment Managers,”
October 5, 2021, https://ir.usbank.com/news-releases/news-release-details/us-bank-announces-new-cryptocurrency-
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In July 2020, the OCC updated its guidance on custody services to clarify that national banks and federal savings
associations could provide these services to digital currencies such as cryptocurrency. In November 2021, the
OCC updated guidance once again to clarify that national banks should first receive permission from the OCC
before engaging in cryptocurrency activities in order to ensure that the bank has “appropriate risk management
systems and controls in place to conduct them safely.”48 Further, the FDIC, OCC, and Federal Reserve issued a
joint statement in November 2021 to provide a “roadmap” for cryptocurrency policy in 2022, including custody
services, issuance of cryptocurrency, and other activities.49
While commercial banks can offer a limited set of custodial services in addition to their core banking operations,
trust banks (or custodial banks) primarily specialize in a range of fiduciary and custodial services.
Similar to banks, trust companies are chartered either at the state level by a state agency or at the
federal level by the OCC.50 These charters require prospective trust companies to establish certain
capital requirements, corporate structures, and capacity to comply with relevant laws.
National Trust Banks
The OCC charters trust companies pursuant to its authorities under Title 12, Section 92a, of the
U.S. Code and Title 12, Section 5.26, of the Code of Federal Regulations.51 The OCC considers
trust companies a type of bank with “special purpose operations.”52 Typically, they are chartered
as uninsured national banks restricted to the activities of a trust company. As of May 31, 2021,
there were 53 active national trust banks.53
National trust banks are not subject to the full set of regulations that are generally applicable to
commercial banks. For example, according to the OCC’s guidance on national trust bank
supervision, national trusts are chartered with a condition specifying a minimum dollar amount of
capital and, in some cases, a minimum amount of liquidity that must be initially maintained
instead of being subject to the generally applicable bank capital and liquidity rules. Further, a
national trust bank is typically not a bank for BHCA purposes, and so a company that owns a
national trust bank and no other bank is not a BHC.54 The application for trust bank charters is the

custody-services.
48 OCC, “OCC Clarifies Bank Authority to Engage in Certain Cryptocurrency Activities and Authority of OCC to
Charter National Trust Banks,” press release, November 23, 2021, https://www.occ.gov/news-issuances/news-releases/
2021/nr-occ-2021-121.html.
49 Federal Reserve, FDIC, and OCC, “Joint Statement on Crypto-Asset Policy Sprint Initiative and Next Steps,”
November 23, 2021, https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20211123a1.pdf.
50 State-chartered trusts can also become members of the Federal Reserve.
51 For more information on the supervision of national trust banks, see OCC, “OCC Bulletin 2007-21,” June 26, 2007,
https://www.occ.gov/news-issuances/bulletins/2007/bulletin-2007-21.html.
52 OCC, Comptroller’s Licensing Manual: Charters, p. 1.
53 OCC, “Trust Banks Active As of 5/31/2021,” https://www.occ.treas.gov/topics/charters-and-licensing/financial-
institution-lists/trust-by-state.pdf.
54 According to the OCC’s licensing manual, there are two ways for a national trust bank not to be a bank under the
BHCA. First, a national trust bank does not meet the general definition of bank under Title 12, Section 1841(c)(1), of
the U.S. Code if the trust bank (1) is not insured and (2) does not accept demand deposits and make commercial loans.
Second, even if a trust bank is insured and would otherwise meet the definition of bank, a trust bank is not considered a
bank for purposes of the BHCA if it meets certain conditions (12 USC 1841(c)(2)(D)). These conditions are as follows:
(1) The institution must function solely in a trust or fiduciary capacity, (2) all or substantially all of the trust bank
deposits are in trust funds and are received in a bona fide fiduciary capacity, (3) no trust bank deposits insured by the
FDIC are offered or marketed by or through an affiliate, (4) the trust bank does not make commercial loans or accept
demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or
others, (5) the trust bank may not obtain payment or payment-related services from any Federal Reserve Bank, and (6)
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same as for de novo institutions: Organizers must complete the Interagency Charter and Federal
Deposit Insurance Application. In addition, they are supposed to review the Fiduciary Powers
Application.55
Finally, there are other additional considerations that the OCC may make. For example, based on
the OCC’s assessment of risk, management’s qualifications, the bank’s ability to raise capital
after commencing operations, proposed relationships with affiliates, and the parent company’s
ability to be a source of strength for the trust bank, the OCC may impose a number of
requirements and conditions enforceable under Title 12, Section 1818, of the U.S. Code.
In some cases, particularly when the trust bank is not part of a BHC or is not otherwise affiliated
with an insured depository institution, the OCC may require that the requirements and conditions
be in the form of written agreements among the OCC, the bank, and the bank’s parent, including
an operating agreement between the trust bank and OCC; a capital and liquidity support
agreement among the OCC, bank, and parent; and a capital assurance and liquidity maintenance
agreement between the trust and its parent.
Recent OCC Conditional National Trust Charters
There are currently three cryptocurrency firms that have applied for and received OCC conditional approval for a
national trust charter. Each has a slightly different business model, but a look at the OCC approvals depicts how
trusts can operate in cryptocurrency markets.56
Anchorage Digital Bank received conditional approval January 13, 2021, to provide fiduciary custody of digital
assets, custody fiat and cryptocurrency, governance services for certain protocols, staking services, and settlement
services “facilitated by its affiliates as well as other third-party brokers … as well as by clients themselves.…
Clients or their Brokers may direct Anchorage Trust to receive digital assets into and transfer digital assets out of
their vaults and to external accounts.”
Protego Trust Bank received conditional approval February 4, 2021, to provide fiduciary custody services for
cryptocurrency by holding cryptographic keys for Bitcoin and Ethereum and eventually for other digital assets.
Additionally, Protego plans to offer a trading platform for assets under its custody as well as a lending platform.
Paxos National Trust received conditional approval April 23, 2021, to provide “services associated with digital
assets permissible for a national bank, including custody services for digital assets; custody and management of
USD stablecoin reserves; payment, exchange, and other agent services; other cryptocurrency services, such as
trading services and enabling partners to buy and sell cryptocurrency.” Currently, Paxos operates as a state-
chartered trust company in New York, regulated by the New York State Department of Financial Services
(NYDFS), focusing on blockchain investments designed to trade and manage digital assets.
State Custody and Trust Charters
Most states offer charters for trust companies or specialty banks to provide trust services without
necessarily offering core commercial bank services, much like the OCC’s national trust charter.
Each state’s charter and regulatory framework may differ across a number of characteristics.
The reason state trust chartering has recently risen in visibility to Congress is that some states
have begun to offer charters designed so that the holder could offer certain services for clients
active in cryptocurrency trading. This section discusses the two most well-established and

the trust bank may not exercise Federal Reserve Bank discount or borrowing privileges.
55 The application can be found at https://occ.gov/static/licensing/fiduciary-powers-application.docx.
56 The OCC conditional approval for Anchorage can be found at https://www.occ.gov/news-issuances/news-releases/
2021/nr-occ-2021-6.html. The conditional approval for Protego can be found at https://www.occ.gov/news-issuances/
news-releases/2021/nr-occ-2021-19.html. The conditional approval for Paxos can be found at https://www.occ.gov/
news-issuances/news-releases/2021/nr-occ-2021-49.html.
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prominent such charters: the Wyoming Special Purpose Depository Institution charter and the
New York Limited Purpose Trust Company.
Wyoming Special Purpose Depository Institutions
Recently, Wyoming created a new charter for state financial institutions to become “special
purpose depository institutions” (SPDIs). These institutions are defined by the Wyoming Division
of Banking (WDoB) as “banks that receive deposits and conduct other activity incidental to the
business of banking, including custody, asset servicing, fiduciary asset management, and related
activities.”57 WDoB suggests that SPDIs will likely focus on providing services custodial services
for digital assets, virtual currencies, and digital securities. In this light, they may resemble
custody banks or trust companies, as they would be primarily involved in the business of
providing custody or safekeeping for these assets.
Notable Wyoming SPDI Charters
Wyoming’s SPDI was authorized in 2019 under Wyoming Statute Section 13-12-101 et seq. In September 2020,
WDoB approved an application for an SPDI charter from a California-based crypto-exchange called Kraken to
open Kraken Bank.58 Kraken became the first digital asset company in the United States to receive a bank charter,
and it provides certain deposit accounts, custody and fiduciary services, and wire transfer and funding services for
digital assets. Kraken Bank plans to open in 2022.
In October 2020, Avanti Financial became a newly chartered SPDI, known as Avanti Bank and Trust.59 The
approval allows Avanti to provide digital asset custody services as well as its stablecoin-type product called the
Avit, which is a digital asset that is designed to be redeemable at par with the U.S. dollar.60
New York Limited Purpose Trust Company
Limited purpose trust companies were originally authorized by the New York Banking Board in
1971. In general, the application process for a limited purpose trust company charter is similar to
those of a full-service bank with two notable exceptions: the minimum level of capitalization and
the requirement for FDIC insurance. The basic restriction of limited purpose trust companies is
the prohibition on receiving deposits and making loans except as incidental to the exercise of
fiduciary powers. According to NYDFS:61
The initial capitalization must be in an amount deemed satisfactory to the Superintendent
of Financial Services but in no event shall such amount be less than $2,000,000 in Tier 1
capital. Tier 1 capital will consist of permanent core capital elements (common
stockholders’ equity, noncumulative perpetual preferred stock, a limited amount of
cumulative preferred stock, and minority interest in the equity of consolidated subsidiaries)
less goodwill and other intangible assets that are required to be deducted. The Department
requires limited purpose trust companies to at all times maintain their Tier 1 capital at a
level no less than 0.25% of discretionary assets under administration.

57 WDoB, “Special Purpose Depository Institutions,” http://wyomingbankingdivision.wyo.gov/home/areas-of-
regulation/laws-and-regulation/special-purpose-depository-institution.
58 Kraken, “Kraken Wins Bank Charter Approval,” September 16, 2020, https://blog.kraken.com/post/6241/kraken-
wyoming-first-digital-asset-bank/.
59 Nate DiCamillo, “Avanti Financial Joins Kraken as a Wyoming-Approved Crypto Bank,” CoinDesk, October 28,
2020, https://www.coindesk.com/avanti-financial-joins-kraken-as-a-wyoming-approved-crypto-bank.
60 Avanti, “Avanti Granted Bank Charter and Approval of Business Plan for Digital Asset Custody and Tokenized U.S.
Dollar,” October 28, 2020, https://avantibank.com/press/bank-charter-granted.
61 NYDFS, “Organization of a Trust Company for the Limited Purpose of Exercising Fiduciary Powers,”
https://www.dfs.ny.gov/apps_and_licensing/banks_and_trusts/procedure_certificate_merit_trust_comp.
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New York Nonbank Financial Licenses vs. Bank Charters
States issue a range of licenses to offer financial services in addition to banking charters. State-regulated fintech
firms can operate with a range of licenses and charters, not all of which subject them to regulation comparable to
banks. For example, there are LLC licenses, state-chartered trust companies, and money transmitter licenses that
each allow various fintech firms to operate.
For example, in 2013, NYDFS began investigating the possibility of accepting virtual currency applications for its
money transmitter license. At the time, any virtual currency businesses were using money transmitter licensing to
operate in each state. After issuing a proposal in July 2014 to license and regulate virtual currency businesses
operating in New York State, in 2015, NYDFS created BitLicense and requires “a virtual currency business”
operating in New York State to obtain a license from NYDFS. This license can take two forms: a BitLicense or a
limited purpose trust company charter. Under Title 23, Section 200.3(q), of the New York Codes, Rules and
Regulations, the term virtual currency business includes businesses that receive or transmit virtual currency, store or
custody virtual currency, or trade or perform exchange services for virtual currency.
In either charter, crypto firms face consumer protection requirements and Know Your Customer and anti-money-
laundering rules. But the charters have differences:

Companies applying for a Limited Purpose Trust Charter have additional regulatory requirements than those
with BitLicenses, including applying to the New York Banking Board rather than just NYDFS.

Trust charters have fiduciary powers that allow trust companies to manage their clients’ assets.

A recipient of a BitLicense must apply for a New York money transmitter license, whereas a trust company
can engage in money transmission with its trust status.
Charter holders can engage in activities, such as listing and custody services, involving only
certain approved cryptocurrencies.62 As of October 2021, there were 29 DNYFS-chartered virtual
currency companies, including nine with limited purpose trust company charters.63 These include
some notable companies, such as Coinbase, PayPal, Robinhood Crypto, SoFi Digital Assets,
Square, and the aforementioned Paxos Trust Company. In October 2021, NYDFS announced that
it granted conditional approval to PayPal for a BitLicense to partner with Paxos and operate a
cryptocurrency business line.64
Future of Cryptocurrency Charters
While this report focuses on extant charters, there are a few states that have sought to introduce charters that
approximate the Wyoming and New York chartering approach for cryptocurrency activities. For example,
Nebraska’s governor signed into law a bill that would create a state bank charter for digital asset depository
institutions. The bill was reportedly co-authored by a cryptocurrency firm, Telcoin. It authorizes state-chartered
digital asset depository institutions to provide custody services for cryptocurrency assets, similar to the Wyoming
SPDI charter. The law permits such institutions to provide payment services, provide non-lending cryptocurrency
services, become a member of the Federal Reserve System, and organize as corporations under the Nebraska
Model Business Corporation Act. Such institutions cannot accept demand deposits of U.S. currency or make
consumer loans of any fiat currency. The guidelines and authorization of digital asset entities became effective
October 1, 2021. Other states are considering similar proposals, and it remains to be seen what the industry
interest in state charters for cryptocurrency will be.

62 Cryptocurrencies approved for listing include Binance USD (BUSD), Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum
(ETH), Gemini Dollar (GUSD), Litecoin (LTC), Pax Gold (PAXG), and Paxos Standard (PAX).
Cryptocurrencies approved for custody include all cryptocurrencies approved for listing (above), Ethereum Classic
(ETC), and Ripple (XRP).
63 NYDFS, “Virtual Currency: Regulated Entities,” May 6, 2021, https://www.dfs.ny.gov/apps_and_licensing/
virtual_currency_businesses/regulated_entities.
64 NYDFS, “Superintendent Linda A. Lacewell Announces PayPal to be the First Approved Entity for DFS Conditional
BitLicense,” press release, October 21, 2020, https://www.dfs.ny.gov/reports_and_publications/press_releases/
pr202010211.
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OCC Proposed Fintech Bank Charters
In recent years, the OCC has explored the possibility of granting special purpose charters to
nondepository fintech companies that may seek to engage in bank-like activities, such as lending,
payment processing, and cryptocurrency services.
OCC Special Purpose National Bank Charter
In 2003, the OCC issued a rulemaking authorizing special purpose national banks (SPNBs).65 The
rule states that the OCC charters national banks under its authority pursuant to the National Bank
Act of 1864, as amended,66 and that these banks may take the form of “a special purpose bank
that limits its activities to fiduciary activities or to any other activities within the business of
banking.” SPNBs that conduct activities other than fiduciary activities must provide one of the
following three core banking functions: receiving deposits, paying checks, or lending money.
In December 2016, the OCC announced a proposal to extend the SPNB charter to fintech
companies.67 The proposal would make companies—such as marketplace lenders, digital
payments processors, and digital currency companies—more clearly eligible to obtain a national
bank charter. In July 2018, the OCC announced that it would begin offering the SPNB charter to
fintech companies,68 and it updated its licensing manual with a supplement that considers charter
applications from fintechs.69 The OCC notes that it tailors capital requirements for SPNBs, so this
could be perceived as advantageous to certain fintech firms that are currently subject to the
capital requirements of each state in which they operate.70 Specifically, the supplement addresses
applications from fintech companies that would engage in either paying checks or lending money
but would not take deposits and thus would not be insured by the FDIC.71 The supplement makes
clear that fintechs that plan to take insured deposits should pursue full-service national bank
charters.
Over the past few years, the OCC’s SPNB charter met a series of legal challenges, notably from
state regulators such as NYDFS and the Conference of State Bank Supervisors.72 In June 2021, a
federal appeals court ruled that the OCC could issue SPNB charters to institutions that do not
accept deposits, overturning a prior challenge from NYDFS.73 While a number of fintechs have

65 2 C.F.R. §5.23(e), as promulgated in OCC, “Rules, Policies, and Procedures for Corporate Activities; Bank Activities
and Operations; Real Estate Lending and Appraisals,” 68 Federal Register 70122, 70129, December 17, 2003.
66 12 U.S.C. §1 et seq.
67 OCC, “Exploring Special Purpose National Bank Charters for Fintech Companies,” December 2016,
https://www.occ.gov/publications-and-resources/publications/banker-education/files/exploring-special-purpose-nat-
bank-charters-fintech-companies.html.
68 OCC, “OCC Begins Accepting National Bank Charter Applications from Financial Technology Companies,” press
release, July 31, 2018, https://www.occ.gov/news-issuances/news-releases/2018/nr-occ-2018-74.html.
69 OCC, “Comptroller’s Licensing Manual Supplement: Considering Charter Applications from Financial Technology
Companies,” July 2018, https://www.occ.gov/publications-and-resources/publications/comptrollers-licensing-manual/
files/considering-charter-apps-from-fin-tech-companies.html.
70 OCC, “Comptroller’s Licensing Manual Supplement,” p. 9.
71 OCC, “Comptroller’s Licensing Manual Supplement,” p. 2.
72 The history and more details on these legal challenges can be found at CRS Legal Sidebar LSB10381, Court Battle
for Fintech Bank Charters to Continue, by M. Maureen Murphy.
73 Tom Auchterlonie, “Appeal Overturns New York’s Suit over OCC Fintech Charter,” June 7, 2021,
https://www.businessinsider.com/appeals-court-nixes-challenge-to-occ-fintech-charter-2021-6. See also CRS Legal
Sidebar LSB10623, Second Circuit Dismisses New York State Challenge to OCC’s Fintech Charter Authority, by M.
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applied for and received various charter approvals from states (e.g., ILC charters and state special
purpose charters, discussed above) and from the OCC (e.g., national bank charters, as well as
trust charters, discussed above), no institution has applied and been approved for a SPNB fintech
charter.
OCC Proposal for a Payments Charter
In June 2020, then-acting head of the OCC, Comptroller Brian Brooks, announced that he
planned to create an additional national banking charter for payment companies, which he stated
would amount to a “national version of a state money transmitter license.”74 While there is little
information available on the OCC’s website about this proposal, news reports suggested the OCC
said it would be ready in fall 2020 to begin processing applications for money transmitters such
as PayPal or MoneyGram and cryptocurrency exchanges such as Coinbase to operate nationally
under one charter.75 (Currently these companies are licensed at the state level, often as money
transmitters.76) In November 2020, Forbes reported that Acting Comptroller Brooks announced
that the OCC’s Payments Charter is now available.77 The current acting comptroller, Michael
Hsu, has made a number of public comments regarding the general concept of fintech charters,
but little public discussion is available on the prospects or contents of a payments charter, and it is
seemingly effectively on hold.
Policy Issues for Congress
De Novo Creation
One perennial concern for Congress is the creation of new banks. Over time, the banking system
has consolidated from over 18,000 institutions in the 1980s to under 5,000 today. This
consolidation is the result of a number of factors, including relaxing inter-state banking
restrictions and other regulations to facilitate national bank branching, technological advances
that support economies of scale of larger institutions, financial crises that result in bank closures,
and mergers and acquisitions. In the wake of this consolidation, there has also been a general
slowdown in the creation of new banks in recent years.
De novo banks saw a significant drop after the Great Recession (2007-2009). The number of de
novo banks dropped from an average of 149 per year from 1990 to 2008 to only seven per year
from 2009 to 2021. This drop is shown in Figure 1. One concern over de novo creation is that
competition in the banking system is jeopardized by the decreasing number of banks in the

Maureen Murphy.
74 Before working at the OCC, Brian Brooks worked as general counsel for Coinbase, a virtual currency exchange.
Acting Comptroller Brooks unveiled the plan in a podcast with the American Bankers Association (ABA). See ABA,
“Podcast: OCC’s Brooks Plans to Unveil ‘Payments Charter 1.0’ This Fall,” June 25, 2020,
https://bankingjournal.aba.com/2020/06/podcast-occs-brooks-plans-to-unveil-payments-charter-1-0-this-fall/.
75 Abdullah Khan, “OCC Moves Ahead with Proposed Payments Charter—Politico,” September 1, 2020,
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/occ-moves-ahead-with-proposed-
payments-charter-8211-politico-60173603.
76 For more on the regulation of money transmitters, see CRS Report R46486, Telegraphs, Steamships, and Virtual
Currency: An Analysis of Money Transmitter Regulation, by Andrew P. Scott.
77 Jason Brett, “Exclusive: OCC Chief Brian Brooks Says Payments Charter Is Ready, More Crypto Banks Coming
Soon,” Forbes, November 17, 2020, https://www.forbes.com/sites/jasonbrett/2020/11/17/exclusive-occ-chief-brian-
brooks-says-payments-charter-is-ready-more-crypto-banks-coming-soon/.
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financial system. While it is not evident that broad competition issues are present generally, as the
banking system continues to consolidate, the lack of de novo creation facilitates this trend further.
Figure 1. De Novo Creation
Number of De Novo Banks per Year

Source: FDIC data, figure reproduced from Banking Strategist, https://www.bankingstrategist.com/de-novo-
bank-chartering-trends.
Tailored Regulation or Regulatory Arbitrage?
ILCs and trust banks are subject to different requirements than commercial banks are, as is shown
in Table 7. Whether these different regulatory treatments effectively and efficiently implement
safeguards appropriate to each institution’s risk profile or are allowing companies providing bank
services an opportunity to be more lightly regulated is a matter of debate.
To the extent fintech firms are seeking bank charters to offer services similar to a commercial
bank, the different regulatory structures pertaining to ILCs and trust banks may offer certain
advantages to a fintech firm. As Acting Comptroller Hsu recently stated, “Increasingly, the three
cornerstones of banking—taking deposits, making loans, and facilitating payments—are being
reassembled functionally and digitally outside of the bank regulatory perimeter by certain
firms…. [T]hese ‘synthetic banking providers’ (SBPs) operate out of the reach of bank regulators
and free of bank rules, such as capital requirements, bank consumer protection laws, and the
Community Reinvestment Act.”78

78 Acting Comptroller Michael Hsu, remarks before the American Fintech Council, “Leveling Up Banking and
Finance,” November 3, 2021, https://www.occ.gov/news-issuances/speeches/2021/pub-speech-2021-115.pdf.
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Table 7. Regulatory Structure for Banks, ILCs, and Trusts

Commercial Banks
ILCs
Trusts
Charter
National bank (NB) charter
Specific state bank charter
Limited-purpose national
(OCC) or state bank charter.
offered in six states.
trust bank (NTB) charter
(OCC) or state trust
charter.
Deposit insurance
Required for NBs; most states
Required.
Typically not required
from Federal
require FDIC insurance for bank
unless the trust bank
Deposit Insurance
charters.
accepts deposits from the
Corporation
general public. In some
(FDIC)
cases extra reserves are
required in lieu of deposit
insurance.
Federal Reserve
Required for NBs; state-
ILCs are permitted to be
Trusts are permitted to
Membership
chartered banks can join
members. (None are
be members.
currently.)
Primary federal
NB: OCC.
FDIC.
NTB: OCC.
regulator (PFR)
State members banks: Federal
State trusts are typically
Reserve.
not required to have
State nonmember banks: FDIC.
deposit insurance and are
subject only to state
regulation.
Supervisory
PFR and state (for state
FDIC and state examiners
PFR and state examiners
framework
charters) bank examiners
supervise the ILC as they
provide review for safety
provide review for safety and
would most other state-
and soundness and
soundness and compliance with
chartered insured
compliance with various
various laws. FDIC has backup
depository institutions
laws. FDIC has backup
supervisory role and conducts
(IDIs). The FDIC may
supervisory authority for
special examinations for insured
generally set certain
trust banks that have
depositories. Consumer
conditions on the parent
deposit insurance. CFPB
Financial Protection Bureau
holding company to
has supervisory authority
(CFPB) has supervisory
provide certain information for compliance with
authority for compliance with
on itself and its subsidiaries
consumer laws among
consumer laws among banks
and may require that it be
trusts with assets of $10
with assets of $10 billion or
allowed to examine the
billion or more.
more.
parent company. CFPB has
supervisory authority for
compliance with consumer
laws among banks with
assets of $10 billion or
more.
Capital
Generally applicable minimum
Generally applicable
NTBs are required by
requirements
capital requirements apply;
minimum capital
statute (12 U.S.C. §§92a
determined by assets and risk-
requirements apply to the
and 1464(n)) to have
weighted assets.
IDI. FDIC may require
capital no less than that
extra capital (at IDI or
required by state law for
parent) as a condition of
companies offering similar
approval for deposit
services in the state in
insurance.
which the bank will be
located. State banking
laws apply to state trusts.
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Commercial Banks
ILCs
Trusts
Bank Holding
Applies to companies that own
BHCA does not apply.
NTBs are typically not
Company Act
or control banks. Federal
Exception granted under
considered banks for
(BHCA)
Reserve Board provides
12 C.F.R. §204.2(b)(1),
purposes of the BHCA.
additional oversight for bank
conditional upon the
holding companies.
institution refraining from
accepting demand deposits.
Community
Applies to banks.
Applies to ILCs.
Exceptions to CRA
Reinvestment Act
requirements exist, and
(CRA)
obligations to meet CRA
requirements are tailored
to the institution.
Bank Secrecy Act/
Applies to banks.
Applies to ILCs.
Applies to trusts.
Office of Foreign
Assets Control
requirements
Source: CRS analysis of OCC and state licensing procedures.
The most obvious difference is that not all trust banks are required to have deposit insurance, and
the BHCA requirements do not apply to all of these institutions. Second, while national trust
banks are subject to minimum leverage and risk-based capital ratios defined in Title 12, Section 3,
of the Code of Federal Regulations, these ratios are not considered optimal measures of capital
adequacy, particularly due to the risk posed by off-balance-sheet asset management activities that
are not captured in capital ratio calculations.
As new types of fintech companies are able to obtain ILC and trust charters, it is possible the
existing framework will insufficiently address the risks these new activities pose to the financial
system and potentially create an unlevel playing field within the banking and financial system for
a range of financial services. For example, commercial banks can offer payment and exchange
services to customers, but banks that facilitate cryptocurrency exchanges (as discussed in the next
section) through the trust bank model may be able to offer a substantially similar service while
facing different regulatory standards. Further, as discussed in more detail below, there is a debate
over the extent to which stablecoin issuers need to have deposit insurance to adequately protect
against systemic risk.
On the other hand, allowing companies with innovative business models the option to enter into
the bank regulatory regime, even with tailored requirements such as those applicable to trust
charters, may be a more suitable framework than the patchwork of state nonbank financial
requirements that face other financial companies such as money transmitters, particularly when
they seek to operate across state borders.
Recent Use of Trust Charters by Cryptocurrency Firms
Cryptocurrencies were invented in 2009, and as such the vast majority of laws and regulations
related to the financial system were implemented without consideration of their specific features
and potential risks. Regulators have extended existing authorities and regulations to
cryptocurrencies and related activities and firms. But how well the existing regulatory framework
fosters the benefits while safeguarding against the risks is an open question. This has made
cryptocurrency regulation an area of heightened congressional attention. Meanwhile, a number of
firms that want to provide cryptocurrency services have applied for and been granted national
trust charters or state charters.
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As noted in previous sections, there are currently three cryptocurrency firms that have applied for
and received conditional approval from the OCC for national trust charters. In addition, there are
some notable state-chartered limited purpose banks that are operating in cryptocurrency markets,
primarily in Wyoming and New York. Each of these institutions has a slightly different business
model, but Table 8 depicts some of the activities banks are permitted to undertake with respect to
cryptocurrency.
Table 8. Select Bank Cryptocurrency Activities
Examples of Recent Banking Activities in Cryptocurrency
Type of Banking Institution
Permitted Cryptocurrency Activities
Full-service national banks (i.e.,
Issue stablecoins for payment purposes; participate in blockchain networks;
commercial banks)
hold cryptocurrency and cryptographic keys in custody.79
Limited purpose national banks
Offer trading and lending platforms (or facilitating such activities through
(i.e., trust banks)
partnerships); custody and management of stablecoin reserves; payment,
exchange, and other agent services for digital assets.
Limited purpose state banks (e.g.,
Issue stablecoins and tokenized dollars; offer deposit accounts for digital
Wyoming Special Depository
currencies/stablecoins 100% backed by dollar reserves (in lieu of deposit
Institution, New York BitLicense)
insurance); offer wire transfer and funding services; potentially act as Federal
Reserve clearing bank (upon receiving FDIC insurance); partner with
businesses to facilitate cryptocurrency transactions.
Source: OCC conditional charter approvals for Anchorage, Protego, and Paxos; Wyoming Division of Banking,
New York Division of Financial Services; Kraken and Avanti websites.
Stablecoin Issuers as Insured Depository Institutions
A certain type of cryptocurrency, commonly called stablecoins, aim to maintain a stable value (in
contrast with most cryptocurrencies that have highly volatile values). They are also subject to
policymaker scrutiny for many of the same reasons cryptocurrencies are, as discussed in the
previous section. In December 2021, the President’s Working Group on Financial Services
released a report recommending that certain cryptocurrency issuers of stablecoins be regulated as
insured depository institutions.80 This may have implications for charters down the road.
Banking institutions can provide fiduciary and non-fiduciary custody services for cryptocurrency
products much the same way they do for dollar-denominated accounts. Without an FDIC
insurance requirement, trust banks can back holdings with reserves, offering some deposit
protection to customers without jeopardizing the government backstop of deposit insurance.
However, there are persistent concerns about the entry of fintechs into the banking system, and
the use of trust charters for these firms may draw concern over regulatory arbitrage, blending
commerce with banking, and the potential for systemic risk. These risks were highlighted in the
President’s Working Group on Financial Markets report on stablecoins.81 One proposal from the
report was to regulate stablecoin issuers as insured depository institutions. The requirement of
deposit insurance poses potential implications for bank charters.

79 See OCC, “Federally Chartered Banks and Thrifts May Participate in Independent Node Verification Networks and
Use Stablecoins for Payment Activities,” press release, January 4, 2021, https://www.occ.gov/news-issuances/news-
releases/2021/nr-occ-2021-2.html.
80 President’s Working Group on Financial Markets, Report on Stablecoins, November 1, 2021,
https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf.
81 President’s Working Group on Financial Markets, Report on Stablecoins.
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Deposit insurance is a government safety net designed to prevent “runs” at banks and protect
ordinary citizens seeking to keep their money safe from losses. The recent findings in the
November 2021 President’s Working Group on Financial Markets report (issued along with the
federal banking regulators) on stablecoins suggest that the Administration may favor regulating
issuers of such digital assets as insured depository institutions. To do so, the OCC may need to
either require deposit insurance for certain trust banks that issue stablecoins, charter all issuers as
full-service national banks (which are required to have deposit insurance), or create a separate
regime for chartering these issuers. Many trust institutions are limited in their deposit-taking
capacity, and so the effectiveness of deposit insurance on stemming the likelihood of runs is
debated. Extending deposit insurance to stablecoin issuers extends the federal safety net and
inherent moral hazard issues to a product that does not have many of the features that have
justified federal insurance for traditional deposits. Further, reserve requirements could offset the
risk of consumer losses without the need for a government safety net. However, it is worth noting
that money market mutual funds—nondepository investment funds that issue shares that have
similar characteristics to stablecoins—are also backed by high-quality liquid reserves and have
nevertheless suffered from bank-like runs in recent years.
The working group report called for legislative action to facilitate regulating stablecoin issuers as
insured depository institutions: “[L]egislation should limit stablecoin issuance, and related
activities of redemption and maintenance of reserve assets, to entities that are insured depository
institutions. The legislation would prohibit other entities from issuing payment stablecoins.
Legislation should also ensure that supervisors have authority to implement standards to promote
interoperability among stablecoins.”82 While most states require commercial banks to have FDIC
insurance, states do not necessarily require it for limited purpose banks. For example, Wyoming
does not require FDIC insurance for SPDIs; rather, it requires 100% reserves against the value of
cryptocurrency held in SPDIs.
One potential policy approach, at least in the short run, could be to address the concern over
reserves through enhanced disclosures among stablecoin issuers and the institutions that provide
custody services for digital assets. The reserves backing stablecoins can vary. For example, in
October 2020, the OCC issued interpretive guidance clarifying that national banks were allowed
to receive dollar-denominated deposits, which may serve as reserves for stablecoins issuers.83 At
the state level, Wyoming requires custody banks that issue stablecoins to hold at all times
“unencumbered level 1 high-quality liquid assets valued at 100% or more of their depository
liabilities.”84
Reserves backing stablecoins could be vulnerable to runs if the stablecoin holders seek to redeem
their holdings for cash simultaneously. However, unlike securities regulation, which requires a
disclosure of reserves to investors, no such disclosure to the public is required from banking
regulators for trust banks that issue stablecoins or for national banks that hold stablecoin reserves.
(There are data sources made public by regulators, such as call reports, which provides
information on the condition of banking institutions on a quarterly basis, but this differs from

82 President’s Working Group on Financial Markets, Report on Stablecoins, p. 15.
83 OCC, “OCC Chief Counsel’s Interpretation on National Bank and Federal Savings Association Authority to Hold
Stablecoin Reserves,” September 21, 2020, https://www.occ.gov/topics/charters-and-licensing/interpretations-and-
actions/2020/int1172.pdf. As mentioned earlier in this report, the OCC issued updated guidance clarifying that national
banks should obtain permission before engaging in cryptocurrency activities. This update is a culmination of a review
of prior interpretive guidance, including Interpretive Letter 1172, cited here.
84 WDoB, “Special Purpose Depository Institutions,” https://wyomingbankingdivision.wyo.gov/banks-and-trust-
companies/special-purpose-depository-institutions.
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disclosure requirements that make clear what reserves are backing specific instruments.) Thus, it
is unclear whether stablecoin market participants can appropriately discern whether they are
holding assets backed by the claimed reserves.
While disclosures and reserve requirements will not prevent runs, as is evidenced by the fact that
money market mutual funds have experienced runs while being subject to disclosures and reserve
requirements, it may facilitate a better understanding of the underlying risks associated with
holding a crypto-asset such as a stablecoin. Legislation could require reserve disclosures for
stablecoins, either through anti-money-laundering reporting requirements for issuers that hold
reserves in U.S. banks85 or through banking laws for trusts and insured depository institutions that
issue stablecoins or hold their reserves. Alternatively, legislation could require financial
institution regulators to impose contractual terms specifying disclosure responsibilities for firms
depositing reserves for stablecoins.

Author Information

Andrew P. Scott

Analyst in Financial Economics

Acknowledgments
The author would like to thank David Perkins, whose prior work on industrial loan companies contributed
to the development of this report.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

85 The Financial Crimes Enforcement Network (FinCEN) currently requires money transmitters, including exchangers
of virtual currency, to report and register in compliance with Bank Secrecy Act (BSA, P.L. 91-508) provisions
promulgated by FinCEN. For more information, see FinCEN, “Application of FinCEN’s Regulations to Persons
Administering, Exchanging, or Using Virtual Currencies,” March 18, 2013, https://www.fincen.gov/sites/default/files/
shared/FIN-2013-G001.pdf. For more information on general money transmitter regulation, including reporting
requirements for cryptocurrency and BSA compliance, see CRS Report R46486, Telegraphs, Steamships, and Virtual
Currency: An Analysis of Money Transmitter Regulation, by Andrew P. Scott.
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