The Battle Over Crypto Banking Is Now Headed to Court, What's Next?

The fight over crypto’s place in the US banking system has entered a new phase.

The Independent Community Bankers of America (ICBA), a trade group representing community banks, has sued the Office of the Comptroller of the Currency (OCC) over its decision to allow certain cryptocurrency companies and other nontraditional financial firms to operate under national trust bank charters.

Filed on October 2 in the US District Court for the District of Columbia, the lawsuit challenges an OCC final rule issued on March 2, 2026, as well as related guidance under Interpretive Letter No. 1176. ICBA argues that the regulator exceeded the authority granted to it by Congress by allowing national trust charters to be used by institutions engaged in substantial non-fiduciary activities.

The case therefore reaches beyond a handful of crypto companies. It raises a broader question for US financial regulation: how far can digital-asset firms enter the banking system without taking on the same obligations as traditional banks?

The Charter at the Center of the Dispute

National trust bank charters are not conventional banking licenses. Institutions operating under this type of charter can hold and manage assets for customers and provide certain financial services, but they do not take traditional deposits or make conventional loans.

That distinction sits at the heart of the lawsuit.

Traditional insured banks operate under requirements covering capital, liquidity, consolidated supervision and, where applicable, federal deposit insurance and Community Reinvestment Act obligations.

ICBA argues that companies operating under national trust charters can gain the credibility associated with a federal bank charter without taking on the broader regulatory obligations imposed on deposit-taking banks.

ICBA President and CEO Rebeca Romero Rainey has argued that the OCC is effectively creating an alternative route for crypto firms to enter the banking system without the same safeguards and obligations faced by community banks.

But the dispute raises a broader question than whether crypto companies should be treated like traditional banks.

Crypto firms increasingly operate across areas that overlap with banking infrastructure, including custody, payments, settlement, asset management and trading. At the same time, many do not accept deposits, make conventional loans or rely on the balance-sheet model of a commercial bank.

That creates a regulatory question with no simple equivalence: should institutions performing different financial functions be subject to the same rules, or should their obligations reflect the risks created by the activities they actually perform?

For the digital-asset industry, the national trust charter can represent a way to bring those businesses into a regulated federal framework without turning them into conventional deposit-taking banks.

For ICBA, the same distinction could create two regulatory tracks, allowing some financial companies to offer bank-adjacent services under a narrower set of obligations.

That tension, between regulatory parity and rules tailored to different activities, is at the core of the lawsuit.

Protego Puts the Dispute Into Practice

The case is not purely theoretical.

ICBA is also challenging the OCC's conditional approval of a national trust bank charter for Protego Holdings Corp., a digital-asset company involved in custody, trading, lending and issuance.

The OCC granted Protego conditional approval in February 2026.

ICBA had opposed the application, raising concerns over risk management, governance and internal controls. The banking group also cited Protego's previous workforce reductions and disputes with a vendor.

Those concerns form part of ICBA's broader argument that crypto-focused firms should not receive what it views as an alternative route into the banking system.

They do not, however, establish that Protego or other charter applicants are unsafe or incapable of satisfying regulatory requirements. The larger legal question is whether the OCC has the authority to issue these types of charters in the first place.

That distinction matters because the lawsuit is fundamentally challenging the regulatory framework and the OCC's authority, rather than simply the business model of one crypto company.

Crypto Industry Pushes Back

The digital-asset industry is pushing back against the lawsuit, arguing that restricting national trust charters could limit financial innovation and competition.

CCI CEO Ji Hun Kim described the ICBA lawsuit as an attempt to resist national trust charters and new developments in payments and financial services.

“The history of American financial services is one of constant evolution and innovation,” Kim said, adding that community banks remain an important part of that system.

Kim also argued that restricting banking to traditional business models would not eliminate demand for financial innovation. He also defended the OCC's ability to adapt its chartering and supervisory frameworks as financial services evolve.

“CCI remains confident in the OCC’s chartering authority and will ensure the voice of the digital asset industry is heard,” Kim said.

The competing positions highlight the central divide in the case. ICBA sees the OCC's approach as creating a potentially uneven regulatory playing field, while the digital-asset industry views national trust charters as a way to bring emerging financial businesses into a regulated federal framework.

Why Community Banks See a Competitive Problem

There is also an economic dimension to the lawsuit.

Community banks typically operate under a framework built around deposit-taking, lending and ongoing prudential supervision. Crypto-focused trust institutions operate under a different model.

If the latter can offer custody, settlement and other financial services under a federal charter without requirements attached to insured deposit-taking institutions, traditional banks could argue that they are competing under fundamentally different rules.

ICBA describes this as an uneven playing field.

But there is another way to view the distinction: the regulatory framework may differ because the underlying activities and risks differ.

A company that does not accept deposits does not create exactly the same run risk as a deposit-taking bank. Likewise, a trust institution that does not make conventional loans does not necessarily present the same balance-sheet risks.

That makes the dispute more complicated than simply asking whether crypto firms should face the same rules as banks.

The harder issue is which activities require which safeguards.

The Consumer Protection Question

The distinction also matters for consumer expectations.

ICBA argues that a federal bank charter could give customers the impression that assets held with a crypto company receive protections associated with traditional federally insured banks.

They do not.

A national trust charter of the type described in the lawsuit does not itself turn customer digital assets into federally insured deposits.

That distinction could become increasingly important as crypto companies gain more recognizable banking credentials and expand their relationships with institutional and retail customers.

The regulatory challenge is therefore not only about what companies are permitted to do. It is also about ensuring that customers understand what protections come with a charter and which do not.

A Test of How Far Crypto Banking Can Go

The OCC's approach reflects a broader question facing the US financial system as digital-asset companies seek regulated infrastructure rather than operating entirely outside traditional financial institutions.

That creates a difficult balancing act for regulators.

Restricting crypto firms to conventional bank structures could force businesses with different risk profiles into regulatory models that were not designed around their activities. But creating specialized pathways can also raise concerns if companies gain access to federal banking credentials without comparable oversight where their activities create comparable risks.

That is ultimately what makes the ICBA lawsuit significant.

It is not simply a battle between community banks and crypto companies. It is a test of whether US banking law can accommodate a financial sector in which custody, payments, settlement and digital assets increasingly overlap.

The court will now have to consider whether the OCC acted within its statutory authority, and, potentially, how far existing banking law can stretch as financial services continue to evolve.