Coinbase Faces Criticism From Traditional Bankers Over Its Ambitions for a Trusted Banking License

In the recent debate surrounding Coinbase's application for a trust charter, the Independent Community Bankers of America (ICBA) has stirred up controversy by advocating for its rejection. This influential group represents the interests of thousands of smaller banks in the US and has submitted its objections to the Office of the Comptroller of the Currency (OCC). Their argument is that Coinbase does not meet the requirements in several key categories.

It's clear that the US banking sector, frustrated by the crypto industry's inroads into its traditional domain, is increasingly actively opposing these developments. The timing of these objections is notable, given the simultaneous action by the Bank Policy Institute (BPI) last week, which also raised objections to trust applications from other crypto-related companies, such as Ripple, Circle and Paxos. The attacks on Coinbase are a strategic move to increase the influence of crypto to limit in the banking sector.

In their letter to the OCC, the ICBA states that Coinbase's trust bank will struggle to operate profitably in a depressed market. This strikes a nerve center, as profitability is crucial to the long-term viability of such institutions. The letter raises further risks, including the concern that the OCC will face difficulties in safely dissolving the trust if it were to fail. Furthermore, the ICBA points to what they consider "clearly deficient risk management," which reinforces concerns about Coinbase's sound operation.

The ICBA has requested that the OCC reject Coinbase's application or at least disclose the application details and hold a public hearing. The BPI has made similar claims about other crypto initiatives.

Paul Grewal, Coinbase's legal representative, has denounced the banks' grievances in a social media response. He describes the banks' actions as an attempt to "dig regulatory ditches" to protect their own interests. The implication that these established institutions favor an unregulated crypto environment raises questions about their true motives.

However, the OCC regulator, led by the recently appointed Jonathan Gould, appears undeterred. Gould, known as a critic of banks' dismissive attitudes toward crypto, is tasked with balancing innovation and regulation. His background as the former general counsel of Bitfury gives him unique insights into the sector, which is crucial as pressure for effective action grows.

Coinbase's application doesn't open the door to becoming a full-fledged bank. Rather, it aims to expand its services, such as payments and repayments, and ease the need for approvals in all fifty states. This endeavor reflects Coinbase's desire to become a full-fledged player in the financial ecosystem, but the road to achieving this is fraught with obstacles.

The ICBA's real estate objections, which state that Coinbase's application raises more fundamental issues that could jeopardize the safety and soundness of the US banking system, are significant. This casts a shadow over the reputation of the cryptocurrency industry and its overall acceptance by established financial institutions.

Frequently Asked Questions

What are the ICBA's core concerns regarding Coinbase?
The ICBA is concerned that Coinbase's trust bank will struggle to operate profitably in a bear market, and that the OCC will have problems with a potential dissolution of the trust. They also point to deficiencies in risk management.

Why is Coinbase's application so important to the crypto industry?
The application allowed Coinbase to diversify their services and operate without the need for approval in every individual state, increasing their competitiveness and adaptability in the financial sector.

What is the role of the OCC in this process?
The OCC is responsible for issuing banking licenses and overseeing the activities of national banks. Their decision on Coinbase's application will set a precedent for how the mainstream banking sector handles crypto initiatives.