Farewell to the "correspondent bank" era? Five crypto institutions obtain direct access to the Federal Reserve payment system
Original | Odaily (@OdailyChina)
Author | Ethan (@ethanzhang_web3)
On December 12, 2025, the Office of the Comptroller of the Currency (OCC) in Washington, D.C., announced the conditional approval for five digital asset institutions—Ripple, Circle, Paxos, BitGo, and Fidelity Digital Assets—to transform into federally chartered national trust banks.
This decision did not trigger significant market volatility, but it is widely regarded by regulators and the financial sector as a watershed moment. Crypto companies, which have long operated on the fringes of the traditional financial system and frequently faced interruptions in banking services, are, for the first time, formally incorporated into the U.S. federal banking regulatory framework as “banks.”
The change did not come suddenly, but it is thorough. Ripple plans to establish the “Ripple National Trust Bank,” and Circle will operate the “First National Digital Currency Bank.” These names themselves clearly convey the signal regulators are sending: digital asset-related businesses are no longer merely “high-risk exceptions” subject to passive scrutiny, but are now allowed to enter the core of the federal financial system under clear rules.
This shift stands in stark contrast to the regulatory environment of a few years ago. Especially during the banking turmoil of 2023, the crypto industry was mired in a so-called “de-banking” crisis, systematically cut off from the U.S. dollar settlement system. With President Trump signing the GENIUS Act in July 2025, stablecoins and related institutions received clear federal legal status for the first time, providing the institutional foundation for the OCC’s issuance of these concentrated licenses.
This article will analyze the institutional logic and real-world impact behind this approval from four perspectives: “What is a federal trust bank?”, “Why is this license so important?”, “Regulatory shifts in the Trump era,” and “Traditional finance’s response and challenges.” The core conclusion is: The crypto industry is shifting from being an “external user” dependent on the banking system to becoming part of the financial infrastructure. This not only changes the cost structure of payments and settlements but is also redefining the meaning of ‘bank’ in the digital economy.
What is a “Federal Trust Bank”?
To understand the true significance of the OCC’s approval, it’s important to clarify a common misconception: these five crypto companies have not obtained a traditional “commercial banking license.”
The OCC has approved “national trust bank” status. This is a type of banking charter that has long existed in the U.S. banking system, but has historically served mainly in areas such as estate management and institutional custody. Its core value lies not in “how much business it can do,” but in its regulatory tier and infrastructure status.
What does a federal charter mean?
In the U.S. dual banking system, financial institutions can choose to be regulated by state or federal authorities. The two are not simply parallel in compliance intensity; there is a clear hierarchy of authority. A federal charter issued by the OCC means the institution is directly regulated by the Treasury system and enjoys “federal preemption,” no longer needing to adapt to each state’s regulatory rules individually in terms of compliance and operations.
The legal foundation for this dates back to the National Bank Act of 1864. Over the following century and a half, this system has been a key tool in forming a unified U.S. financial market. For crypto companies, this is particularly crucial.
Before this approval, whether it was Circle, Ripple, or Paxos, to operate compliantly nationwide in the U.S., they had to apply for money transmitter licenses (MTLs) in all 50 states, facing a “jigsaw puzzle” of differing regulatory standards, compliance requirements, and enforcement approaches. This not only incurred high costs but also severely limited business expansion efficiency.
After becoming federal trust banks, their regulatory oversight shifts from state financial regulators to the OCC. For companies, this means unified compliance pathways, a nationwide business passport, and a structural boost in regulatory credibility.
A trust bank is not a “mini commercial bank”
It is important to emphasize that a federal trust bank is not equivalent to a “full-service commercial bank.” The five institutions approved this time are not allowed to accept public deposits insured by the FDIC, nor can they issue commercial loans. This is one of the main reasons why traditional banking organizations (such as the Bank Policy Institute) have questioned the policy, arguing that it is an “unequal rights and obligations” entry.
However, from the perspective of crypto companies’ business models, this restriction is actually highly compatible. For stablecoin issuers, whether Circle’s USDC or Ripple’s RLUSD, their business logic is based on 100% reserve asset backing. Stablecoins do not engage in credit expansion or rely on fractional reserve lending, so they do not face the systemic risks of maturity mismatches seen in traditional banks. Under these circumstances, FDIC deposit insurance is unnecessary and would significantly increase compliance burdens.
More importantly, the core of the trust bank license is fiduciary responsibility. This means that licensed institutions are legally required to strictly segregate client assets from their own funds and prioritize client interests. After the FTX misappropriation of client assets, this has immense practical significance for the entire crypto industry—asset segregation is no longer a company promise but a mandatory obligation under federal law.
From “custodian” to “payment node”
Another profound aspect of this transformation is the regulatory shift in the interpretation of “trust bank” business scope. OCC head Jonathan Gould explicitly stated that the new federal bank admissions “provide consumers with new products, services, and sources of credit, and ensure the banking system is vibrant, competitive, and diverse.” This laid the policy foundation for admitting crypto institutions.
Within this framework, the conversion of Paxos and BitGo from state-level trusts to federal trust banks is far more than a nominal change. The core is that the OCC system grants federal trust banks a key right: the eligibility to apply for access to the Federal Reserve payment system. Therefore, their real goal is not the “bank” title, but the direct channel to the central bank’s core settlement system.
Take Paxos as an example: although it was already a compliance benchmark under the strict supervision of the New York State Department of Financial Services, the state license had a natural limitation: it could not directly integrate into the federal payment network. The OCC’s approval documents clearly state that the new entity, after conversion, can continue to conduct stablecoin, asset tokenization, and digital asset custody businesses. This is an institutional-level recognition that stablecoin and asset tokenization issuance have become legitimate “banking businesses”. This is not just a breakthrough for individual companies, but a substantive expansion of the scope of “bank” functions.
Once implemented, these institutions are expected to connect directly to central bank payment systems such as Fedwire or CHIPS, no longer needing to rely on traditional commercial banks as intermediaries. The leap from “custodian asset manager” to “direct node in the payment network” is the most structurally significant breakthrough in this regulatory shift.
Why is this license so valuable?
The true value of the federal trust bank license does not lie in the “bank” identity itself, but in the fact that it may open a direct channel to the Federal Reserve’s clearing system.
This is why Ripple CEO Brad Garlinghouse called the approval a “huge step forward,” while traditional banking lobbying groups (BPI) were visibly uneasy. For the former, it’s an improvement in efficiency and certainty; for the latter, it means the long-held monopoly over financial infrastructure is being redistributed.
What does direct connection to the Fed mean?
Previously, crypto companies were always on the “outer layer” of the U.S. dollar system. Whether Circle issuing USDC or Ripple providing cross-border payment services, any final settlement in U.S. dollars had to be completed via commercial banks as intermediaries. This model is known in financial terms as the “correspondent banking system.” On the surface, it’s just a longer process, but in reality, it brings three long-standing industry problems.
First is uncertainty of survival. In recent years, the crypto industry has repeatedly faced unilateral termination of services by banks. Once a correspondent bank withdraws, a crypto company’s fiat channels can be cut off in a very short time, bringing business to a halt. This is the so-called “de-banking” risk.
Second is the cost and efficiency issue. The correspondent banking model means every fund transfer goes through multiple layers of bank clearing, each with its own fees and time delays. For high-frequency payments and stablecoin settlements, this structure is inherently unfriendly.
Third is settlement risk. The traditional banking system generally uses T+1 or T+2 settlement cycles, with funds in transit not only tying up liquidity but also exposing them to bank credit risk. When Silicon Valley Bank collapsed in 2023, Circle had about 3.3 billion USD in USDC reserves temporarily stranded in the banking system—an incident still seen as a cautionary tale for the industry.
The federal trust bank status changes this structure. At the institutional level, licensed entities are eligible to apply for a Federal Reserve “master account.” Once approved, they can connect directly to Fedwire and other federal clearing networks, completing real-time, irrevocable final settlements in the U.S. dollar system without relying on any commercial bank intermediary.
This means that in the critical area of fund clearing, institutions like Circle and Ripple will, for the first time, stand on the same “systemic level” as JPMorgan and Citibank.
Extreme cost advantage, not just marginal optimization
Obtaining a master account brings structural, not just marginal, reductions in payment costs. The core principle is that direct connection to the Federal Reserve payment system (such as Fedwire) completely bypasses the multi-layered intermediaries of traditional correspondent banks, eliminating associated middleman fees and markups.
Based on industry practice and the Federal Reserve’s published 2026 fee schedule, it can be estimated that in high-frequency, large-value scenarios such as stablecoin issuance and institutional payments, this direct model can reduce overall settlement costs by about 30%-50%. The cost savings mainly come from two aspects:
- Direct rate advantage: The Federal Reserve’s per-transaction fee for large-value payments via Fedwire is much lower than commercial banks’ wire transfer rates.
- Simplified structure: Eliminates various correspondent bank fees, account maintenance fees, and liquidity management costs.
Take Circle as an example: its nearly 80 billion USD in USDC reserves face massive daily fund flows. If direct connection is achieved, just the savings on payment channel fees could reach hundreds of millions of dollars annually. This is not a minor optimization, but a fundamental restructuring of the business model’s cost base.
Therefore, the cost advantage brought by master account eligibility is both certain and huge, directly translating into a core moat for stablecoin issuers in fee competition and operational efficiency.
The legal and financial nature of stablecoins is changing
When stablecoin issuers operate as federal trust banks, the nature of their products also changes. Under the old model, USDC or RLUSD was more like a “digital voucher issued by a tech company,” with its security highly dependent on the issuer’s governance and the soundness of partner banks. In the new structure, stablecoin reserves will be placed in a fiduciary system under OCC federal regulatory oversight, and legally segregated from the issuer’s own assets.
This is not the same as a central bank digital currency (CBDC), nor does it involve FDIC insurance, but under the combination of “100% full reserves + federal-level regulation + fiduciary responsibility,” its credit rating is clearly higher than most offshore stablecoin products.
The more practical impact is on payments. For example, Ripple’s ODL (On-Demand Liquidity) product has long been constrained by bank business hours and fiat channel availability. Once inside the federal clearing system, switching between fiat and on-chain assets will no longer be limited by time windows, and the continuity and certainty of cross-border settlements will be significantly enhanced.
The market’s reaction is actually more rational
Although this development is seen as a milestone within the industry, the market response has not been volatile. Whether it’s XRP or USDC-related assets, price changes have been relatively limited. But this does not mean the license’s value is underestimated; it more likely indicates that the market sees it as a long-term institutional change rather than a short-term trading theme.
Ripple CEO Brad Garlinghouse described this development as “the highest standard for stablecoin compliance.” He not only emphasized that RLUSD is now under dual federal (OCC) and state (NYDFS) regulation, but also directly challenged traditional banking lobbyists: “Your anti-competitive tactics have been exposed. You complain that the crypto industry doesn’t follow the rules, but now we’re under direct OCC regulatory standards. What are you really afraid of?”
Meanwhile, Circle also stated that the national trust bank charter will fundamentally reshape institutional trust, enabling issuers to provide institutional clients with digital asset custody services with greater fiduciary responsibility.
Both statements point to the same conclusion: From “being served by banks” to “becoming part of the bank,” crypto finance is entering a whole new stage. The federal trust bank license is not just a piece of paper, but a safe channel for institutional capital that has been hesitant due to compliance uncertainty to enter the crypto market.
The “Golden Era” of the Trump Era and the GENIUS Act
Looking back three or four years, it would have been hard to imagine that crypto companies could gain federal recognition as “banks” by the end of 2025. This transformation was not driven by technological breakthroughs, but by a fundamental shift in the political and regulatory environment.
The return of the Trump administration and the implementation of the GENIUS Act together paved the way for crypto finance to access the federal system.
From “de-banking” to institutional acceptance
During the Biden administration, the crypto industry was long subject to strict regulation and high uncertainty. Especially after the FTX collapse in 2022, the regulatory tone shifted to “risk isolation,” and banks were required to stay away from crypto business.
This phase was known within the industry as “de-banking,” and was described by some lawmakers as “Operation Choke Point 2.0.” According to a subsequent investigation by the House Financial Services Committee, many banks, under informal regulatory pressure, severed ties with crypto companies. The successive exits of Silvergate Bank and Signature Bank epitomized this trend.
The regulatory logic at the time was clear: Rather than struggling to regulate crypto risks, it was easier to isolate them from the banking system altogether.
This logic was fundamentally reversed in 2025.
During his campaign, Trump repeatedly expressed support for the crypto industry, emphasizing his desire to make the U.S. the “global center for crypto innovation.” After returning to office, crypto assets were no longer seen solely as sources of risk, but were incorporated into broader financial and strategic considerations.
The key shift was that stablecoins began to be viewed as an extension tool of the U.S. dollar system. On the day the GENIUS Act was signed, the White House statement explicitly noted that regulated U.S. dollar stablecoins help expand demand for U.S. Treasuries and consolidate the dollar’s international status in the digital age. This essentially redefined the role of stablecoin issuers in U.S. finance.
The institutional role of the GENIUS Act
In July 2025, Trump signed the GENIUS Act. The significance of the act is that, for the first time, it established a clear legal status for stablecoins and related institutions at the federal level. The act explicitly allows non-bank institutions to be federally regulated as “qualified payment stablecoin issuers” if they meet certain conditions. This provided companies like Circle and Paxos, which previously operated outside the banking system, with an institutional entry point into the federal framework.
More importantly, the act imposes strict requirements on reserve assets: stablecoins must be 100% fully backed by U.S. dollar cash or highly liquid short-term U.S. Treasuries. This effectively excludes algorithmic stablecoins and high-risk allocations, and is highly compatible with the “no deposit-taking, no lending” trust bank model.
Additionally, the act establishes priority repayment rights for stablecoin holders. Even if the issuing institution goes bankrupt, the relevant reserve assets must be used to redeem stablecoins first. This provision greatly reduces regulatory concerns about “moral hazard” and enhances the credibility of stablecoins at the institutional level.
Within this framework, the OCC’s issuance of federal trust bank licenses to crypto companies naturally became an institutional implementation in accordance with regulations.
Traditional Finance’s Defense and Future Challenges
For the crypto industry, this is a long-awaited institutional breakthrough; but for Wall Street incumbents, it feels more like a territorial incursion that must be resisted. The OCC’s approval of five crypto institutions to become federal trust banks did not receive unanimous applause, but instead quickly triggered fierce defensive reactions from traditional banking alliances, led by the Bank Policy Institute (BPI). The “old vs. new banks” war has only just begun.
BPI’s fierce counterattack: three core accusations
BPI represents the interests of giants like JPMorgan, Bank of America, and Citibank. Immediately after the OCC’s decision was announced, its leadership issued sharp criticisms, focusing on deep philosophical conflicts in regulation.
First, there is the accusation of “regulatory arbitrage under false pretenses”. BPI points out that these crypto institutions are applying for “trust” licenses as a smokescreen, while actually engaging in core banking activities such as payments and clearing, with systemic importance even greater than many mid-sized commercial banks.
However, by using trust licenses, their parent companies (such as Circle Internet Financial) cleverly avoid being subject to the Federal Reserve’s consolidated supervision as “bank holding companies.” This means regulators have no authority to review the parent company’s software development or external investments—if a code vulnerability in the parent company leads to bank asset losses, this creates a huge risk exposure in the regulatory blind spot.
Second, there is the violation of the sacred principle of “separation of banking and commerce”. BPI warns that allowing tech companies like Ripple and Circle to own banks essentially breaks down the firewall preventing industrial and commercial giants from using bank funds to support their own businesses. What’s more, traditional banks are unhappy about unfair competition: tech companies can use their monopoly in social networks and data flows to squeeze out banks, but are not required to fulfill the community reinvestment (CRA) obligations that traditional banks must bear.
Finally, there is the fear of systemic risk and the lack of a safety net. Since these new trust banks do not have FDIC insurance, if a panic over stablecoin depegging occurs, traditional deposit insurance cannot provide a buffer. BPI argues that such unprotected liquidity dry-ups could quickly spread and evolve into a systemic crisis similar to 2008.
The Fed’s “final hurdle”
The OCC has issued the licenses, but that doesn’t mean everything is settled. For these five newly minted “federal trust banks,” the final and most crucial hurdle to accessing the federal payment system—the right to open a master account—remains firmly in the hands of the Federal Reserve.
Although the OCC recognizes their bank status, under the U.S. dual banking system, the Federal Reserve has independent discretion. Previously, Wyoming-based crypto bank Custodia Bank launched a lengthy lawsuit after being denied a master account by the Fed, setting a precedent that there is still a huge gap between obtaining a license and actually connecting to Fedwire.
This is also the next main battleground for traditional banking (BPI) lobbying. Since they can’t stop the OCC from issuing licenses, traditional banking forces will inevitably pressure the Fed to set extremely high thresholds for master account approval—for example, requiring these institutions to prove their anti-money laundering (AML) capabilities are on par with universal banks like JPMorgan, or demanding additional capital guarantees from their parent companies.
For Ripple and Circle, the contest has only entered its second half: if they get the license but cannot open a master account at the Fed, they will still have to operate through correspondent banks, and the “national bank” gold-plated sign will lose much of its value.
Conclusion: The future is more than just regulatory games
It is foreseeable that the contest over crypto banks will not stop at the licensing level.
On one hand, the attitude of state regulators remains uncertain. Powerful state regulators such as the New York State Department of Financial Services (NYDFS) have long played a leading role in crypto regulation. As federal preemption expands, whether state regulatory authority will be weakened could spark new legal disputes.
On the other hand, although the GENIUS Act has taken effect, many implementation details still need to be formulated by regulators. Specific rules on capital requirements, risk isolation, cybersecurity standards, and more will become policy focal points in the near future. The contest among different interest groups is likely to unfold in these technical provisions.
In addition, market-level changes are also worth watching. As crypto institutions gain bank status, they may become partners for traditional financial institutions or potential acquisition targets. Whether traditional banks acquire crypto firms to enhance their technological capabilities, or crypto companies move into banking, the financial landscape could undergo structural adjustments.
What is certain is that the OCC’s approval is not the end of the controversy, but a new starting point. Crypto finance has entered the institutional mainstream, but how to balance innovation, stability, and competition will remain a key question for U.S. financial regulation in the coming years.
