Buried in a footnote of a nearly five-year-old regulatory letter, IL 1170, the national banking regulator, the Office of the Comptroller of the Currency (OCC), opened the door for national banks to participate in the cryptocurrency marketplace.
The potential to modernize the financial services system and to provide a safe environment for customers to transact in cryptocurrency was never realized because the banking regulatory agencies under the Biden administration, while never retracting the letter, essentially refused to acknowledge the existence and validity of that official publication, IL 1170.
Fast forward to March 7, 2025, and the OCC’s new publication, Interpretive Letter 1183, (IL 1183) provided the clarity that the banking industry has long deserved. The OCC policy is finally clear that national banks can provide cryptocurrency related services as long as the banks do so in a safe and sound manner.
Prior to engaging an any new activity, banks have to prove to their regulator that the activity is allowed, “permissible” in regulatory-speak. Throughout the last four years banks, and those who sought to acquire a bank, tried to use the earlier guidance as a definitive reference source on whether certain cryptocurrency related activities were permitted to be conducted by the bank. When banks attempted to reference that early regulatory letter, IL 1170, they were essentially told by the regulators, “not enough, what else do you have?”
Put another way, for whatever reason, the banking regulators elected to selectively acknowledge official guidance and banks were told not to rely upon official publications that were no longer in favor politically… but never withdrawn.
Full disclosure: my firm, LevelField Financial is seeking to obtain final permission to close upon the acquisition of a bank, and providing services to the niche of customers who have interest in the cryptocurrency space is a cornerstone to our business model.
While not making as much noise as the other participants in the cryptocurrency space, leaders in the banking sector have also crying out for clarity for the last several years.
The highly controlled banking sector has clearly defined regulators and well understood oversight – unlike so many finTech firms who were uncertain as to even which agencies, if any, were the regulators responsible for supervision of cryptocurrency participants.
The banking system was hamstrung not because of a lack of clarity regarding who were the banking regulatory agencies, but rather because, for whatever reason, official guidance no longer could be relied upon.
Banks Can Provide Customer Cryptocurrency Trading Services
The official publication from 2020, deceptively simply named Interpretive Letter 1170 (IL 1170), Authority of a National Bank to Provide Cryptocurrency Custody Services for Customers, did not simply address the clear authority for banks to provide customers the traditional safekeeping services that the OCC states “are among the most fundamental and basic services provided by banks,” and goes much further.
In July 2020, the OCC wrote in IL 1170, “the services national banks may provide in relation to the cryptocurrency they are custodying (sic) may include services such as facilitating the customer’s cryptocurrency and fiat currency exchange transactions, transaction settlement, trade execution, recording keeping (sic), valuation, tax services, reporting, or other appropriate services. “
Throughout the publication the OCC made it clear that banks must apply the same risk management rigor they apply to traditional assets.
Moving cryptocurrency within the perimeter of the banking system makes sense: banks have the most experience working with complex financial assets. Banks are highly regulated and are required to be rigorous in all their activities.
The thinking at the OCC may be that banks, with their century-old playbooks for stability, can bring trust and scale to a market that is too big to ignore—almost $3 trillion and counting.
While this week’s new interpretive letter from the OCC will be very welcome by the banks, participating in the cryptocurrency asset class will still be difficult for most institutions. Banks are currently not permitted by the regulators to own cryptocurrency for their own account. On January 3, 2023, the OCC, Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve issued a statement that essentially stated banks are not allowed to own public cryptocurrencies such as Bitcoin. This restriction should be withdrawn if banks are to be permitted to participate in the cryptocurrency asset class and to fully manage risk.
Movement of cryptocurrency into the banking system is an end to wild west days of offshore crypto exchanges and shady providers with minimal capital and no supervision. Is it a stretch to speculate that the horrific losses that were incurred by ordinary investors by the collapses of FTX, BlockFi, Celsius, and a list of others might not have occurred if those investors had the option of transacting with a full-service, FDIC-insured bank instead of an opaque, unregulated entity?
The upside is tantalizing. For banks, it is a massive revenue opportunity—transaction fees, custody charges, and a foothold in a sector millennials and Gen Z already live in. For customers, it is convenience and credibility; why trust a shaky startup or a lightly regulated entity when the most trusted entity for safekeeping, your bank, can handle your Bitcoin?
The affirmation of IL 1170 plus the recent announcement of the U.S. strategic Bitcoin reserve, is a global signal that America and the banking system will be leaders in the cryptocurrency asset class.
While some are proclaiming the developments of last week a “watershed” for institutional adoption, caution and a tempered view are warranted.
The volatility of cryptocurrency – Bitcoin’s 20% swings aren’t rare – while seen as a feature to some participants, will make some banks nervous about providing exposure to customers. Banks are by nature very cautious, and bank management and boards of directors will take some time to come up to speed.
Regulators expect robust controls, and while that will be a challenge for some, the OCC’s hands-off shift leaves execution to the C-suite, not D.C. And then there is the elephant in the room: consumer risk. Facilitating trades sounds slick until something unforeseen happens, and that will test the ability of banks to adapt century-old safeguards to a 21st-century asset. Financial tech thrives when it balances disruption with discipline—a tightrope that not every lender will walk gracefully.
IL 1183 was signed by Acting Comptroller of the Currency Rodney E. Hood personally, instead of being delegated to a Deputy Comptroller or to the Chief Counsel of the OCC. This may imply that the decision to reassert the authority of national banks to participate in cryptocurrency was made at the highest levels.
In February, in remarks at an American Bankers Association conference in Phoenix, Acting Comptroller Hood said, “‘Acting’ does not mean ‘inactive’.” His signature on IL 1183 last week is confirmation that he means what he says.
The OCC, and the new white house administration under President Donald J. Trump, are pushing ahead at unprecedented speed. The clarity the OCC and the administration brings to cryptocurrency is well overdue, and extremely welcome.
The clarity and robustness of the banking regulatory system, a hallmark of the USA and one of the reasons that America has the largest capital markets on the globe, was overshadowed by politics. Official publications must have meaning, or they must be withdrawn. Selective acknowledgment of published guidance results in nothing having any meaning, and signals something is very wrong. Whether one agrees with the guidance, everyone should agree that Acting Comptroller Hood acted decisively and removed a blemish from the national banking system.
The significance of the last week is not only that banks can facilitate the trading of cryptocurrency or that the United States will accumulate Bitcoin in a strategic reserve; it is the mainstreaming of a once-fringe idea. The OCC has handed legacy players a tool to redefine their relevance, potentially reshaping how we bank, invest, and trust in a digital age. If banks nail the landing—merging crypto’s speed with banking’s stability—this could be the bridge between Main Street and the blockchain.
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