Blockchain Legal Resource

The Office of the Comptroller of the Currency (OCC) issued a conditional approval last week for Anchorage Digital Bank to become the first federally-chartered crypto bank.

In its news release, the OCC emphasized that the Anchorage approval “demonstrates that the national bank charters provided under the National Bank Act are broad and flexible enough to accommodate evolving approaches to financial services in the 21^st century.” This statement aligns with the position that the OCC has taken in recent interpretive letters, providing a strong argument for allowing national banks to offer a variety of innovative financial services, mostly involving digital assets, because offering such services is merely an extension of traditional banking activities.

Anchorage’s business model is specifically focused on forming partnerships with other banks to allow those partner banks to offer digital asset services to their customers. Considering the massive growth in mainstream interest in digital assets in just the past year, more banks will likely be interested in strategic partnerships in order to offer innovative digital asset products and services to customers without having to build the internal systems and expertise to do so.

In the conditional approval letter, the OCC lists as one of the pre-conversion requirements that Anchorage must apply for (but not necessarily receive) membership in the Federal Reserve System. There are several additional conditions that Anchorage will have to meet, mostly focused on ensuring the bank will have sufficient capital and liquidity to operate in a safe and sound manner. Not all of these conditions are public, but a few of the more noteworthy conditions from the Operating Agreement (which is public) are:

1. Minimum capital of $7 million, at least 50% of which must be held in Eligible Liquid Assets;
2. In addition to this capital requirement, a liquidity requirement of the greater of (i) 180 days of operating expenses and (ii) $3 million in Eligible Liquid Assets;
3. No dividends without prior OCC approval; and
4. No material deviations from the OCC approved business plan without prior OCC approval.

Several other companies have filed applications with the OCC to obtain national trust charters, which the OCC should be issuing decisions on in the coming weeks or months.

While the development is certainly noteworthy as Anchorage becomes the first national crypto bank, two digital asset companies already received bank charters last year. Kraken and Avanti each obtained the newly created special purpose depository institution charter from Wyoming. Another thing these companies all have in common is that none will need to obtain approval from the FDIC in order to begin offering their services. The OCC has the discretion to require a national trust bank to acquire FDIC insurance (the majority of national trust banks have FDIC insurance). Notably, the OCC is not requiring that Anchorage be FDIC-insured.

Financial institutions seeking to offer innovative digital asset services have to weigh the pros and cons of pursuing a state versus a national charter, as both have benefits and drawbacks. The national charter grants clear authority to engage in national activities, but the Wyoming charter comes with potential access to a regulator that is at the forefront of digital asset regulation and is incentivized to maintain the competitiveness of the state’s newly created charter.

While there is a lot of recent news that revolves around fintechs and other startups entering the banking sphere, the OCC’s announcement and recent interpretive letters also set the stage for traditional banks to begin offering digital asset services. Several of the largest financial institutions in the world are chartered by the OCC.

It is unclear whether the OCC’s digital asset and innovation-friendly agenda will slow down now that Brian Brooks has stepped down as Acting Comptroller of the Currency.

What the main focus of the OCC will be under the Biden administration will largely depend on who has the privilege to lead the agency. There have been reports that Mehrsa Baradaran, law professor at the University of California’s Irvine School of Law, is a leading contender. If Baradaran becomes the new Comptroller, it can be expected that her tenure will have a strong focus on equal access to financial services—this would be a very timely, and appropriate, focus for the agency.

No matter who assumes the helm of the OCC, they will no doubt be taking over at a time where technology and innovation are transforming the financial services industry at an exponential rate.