Traditional Banks Embracing Cryptocurrency: The Unassuming Revolution by OCC
In a footnote of a regulatory letter from nearly half a decade ago, the Office of the Comptroller of the Currency (OCC) opened the door for national banks to dip their toes in the cryptocurrency market. This historic move aimed to modernize the financial services industry and provide a secure platform for customers to engage in digital currency transactions.
However, under the Biden administration, regulatory agencies didn't seem to acknowledge the significance of this official document, leaving banks in the lurch. Fast forward to March 7, 2025, the OCC's new publication, Interpretive Letter 1183 (IL 1183), finally brought clarity to the matter. National banks can now offer cryptocurrency-related services, as long as they do so in a safe and sound manner.
Over the years, banks and potential acquirers have struggled to secure the go-ahead on certain cryptocurrency activities. When referencing the earlier regulatory letter, banks were typically met with 'not enough, what else do you have?' from regulators. In essence, unofficial guidance had become the norm, leaving the industry in a state of limbo.
Enter IL 1183. The OCC's updated policy provides a clear path for banks to cooperate with the cryptocurrency sector, just as they work with traditional assets. The new publication defines the services banks can offer, such as facilitating exchange transactions, trade execution, recording keeping, valuation, tax services, reporting, and other appropriate services. Banks must, however, maintain the same risk management practices they apply to traditional assets.
Cryptocurrency's integration into the banking system is long overdue. Banks have the added benefit of years of experience working with complex financial assets, as well as stringent regulations that instill rigor and trust. This could pave the way for banks to bring consistency and scale to the digital currency market, which is valued at over $3 trillion and counting.
Despite the welcome clarity, participating in the cryptocurrency industry will remain challenging for most institutions. Banks are currently prohibited by regulators from owning cryptocurrency themselves, according to a statement issued on January 3, 2023. The OCC, Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve stated that banks are not permitted to own public cryptocurrencies, such as Bitcoin, a restriction that should be reconsidered to enable banks to manage risk effectively.
Bringing cryptocurrency into the banking system could mean an end to the wild west days of offshore exchanges and unregulated, shady providers. Could the tumultuous collapses of FTX, BlockFi, Celsius, and others have been prevented if customers had the option of transacting with a reliable, FDIC-insured bank instead?
For banks, participation in the cryptocurrency sector offers a substantial revenue opportunity, including transaction fees, custody charges, and a foothold in the digital age. For customers, it presents convenience and credibility, shifting trust away from unreliable startups and towards traditional financial institutions.
The recent developments mark a global shift toward the United States leading the charge in the cryptocurrency industry. While some herald these developments as a watershed moment for institutional adoption, caution is advised. The notorious volatility of cryptocurrencies will undoubtedly make some banks hesitant, while others may struggle to implement robust controls and adapt century-old safeguards to the 21st century.
IL 1183 was personally signed by Acting Comptroller of the Currency Rodney E. Hood, indicating a high-level decision to reassert the authority of national banks to participate in the cryptocurrency space. Acting Comptroller Hood emphasized that his role signifies action, not inaction. The OCC and the new administration under President Donald J. Trump are pushing ahead with unprecedented speed, bringing much-needed clarity and robustness to the cryptocurrency market.
Leading players in the financial sector now have the opportunity to redefine their roles and reconnect with a new generation of customers. If banks can strike the perfect balance between innovation and discipline, they could bridge the gap between Main Street and the blockchain. Alternatively, their missteps could result in catastrophic consequences, as has been the case with numerous digital currency exchanges and startups. Only time will tell.
- The Office of the Comptroller of the Currency (OCC), in Interpretive Letter 1183 (published in 2025), permitted national banks to provide cryptocurrency-related services, as long as they ensure the safety and soundness of these operations.
- The earlier OCC regulatory letter, published over four years ago, had outlined the possibility for national banks to engage in cryptocurrency transactions, yet under the Biden administration, this significant document seemed to be disregarded by regulatory agencies.
- Despite the OCC's updated policy, banks are still forbidden by regulators from owning cryptocurrencies, such as Bitcoin, according to a statement issued on January 3, 2023, a restriction that hinders their ability to manage risk effectively.