America’s community banks want regulators to kill Coinbase’s banking dreams.

On Monday, the Independent Community Bankers of America urged the Office of the Comptroller of the Currency to reject Coinbase’s application for national trust bank charter, arguing the exchange has “demonstrably flawed risk and control functions” and operates under governance that “prevents independent oversight.”

The 12-page letter attacks Coinbase’s plan to launch its Coinbase National Trust Company on multiple fronts: legal authority, safety and soundness, and resolution risk.

“The application fails to meet statutory chartering standards, presents compounding safety and soundness risks, and would set a dangerous precedent for the structure of the US banking system,” the ICBA wrote.

At stake is crypto’s place in American banking.

Just as Donald Trump’s administration loosens the rules for crypto companies and institutions, and investors alike clamour for more crypto products, banks are fighting back on whether crypto custody belongs inside the regulated banking perimeter.

Regulatory moats

Paul Grewal, Coinbase’s chief legal officer, dismissed the opposition as protectionism.

“Imagine opposing a regulated trust charter because you prefer crypto to stay… unregulated,” Grewal wrote on X on Tuesday. “That’s ICBA’s position. It’s another case of bank lobbyists trying to dig regulatory moats to protect their own.”

Grewal accused community banks of blocking innovation to maintain competitive advantages, comparing the charter fight to banks’ efforts to restrict crypto rewards programs.

“From undoing a law to go after rewards to blocking charters, protectionism isn’t consumer protection,” he said.

The ICBA did not immediately respond to a request for comment.

The legal problem

The ICBA’s main argument targets the legal foundation of Coinbase’s application.

In short, the application relies on OCC Interpretive Letter 1176, issued in January 2021, which concluded that national trust banks can engage in non-fiduciary activities beyond traditional trust functions.

But the ICBA argues that the letter violates the Administrative Procedure Act because it was not subject to public notice and comment.

“IL 1176 was issued in violation of the public notice and comment procedures of the Administrative Procedure Act, and as such, is not legally valid,” the letter states.

According to the ICBA, the OCC issued IL 1176 without publishing it in the Federal Register or allowing public input — a process the organisation says is required for any rule that makes a major change to prior OCC policy.

Since 1962, OCC regulations limited national trust banks to traditional banks.

Coinbase did not immediately respond to a request for comment.

Time in courts

Even if the legal issues can be resolved, the ICBA argues Coinbase’s track record disqualifies it from running a national bank.

Why?

The crypto exchange has faced enforcement actions over the past five years.

These include a January 2023 consent order from the New York Department of Financial Services for anti-money laundering failures, a July 2025 Connecticut order against the Coinbase Custody Trust Company for unlicensed money transmission, and penalties from other UK and US regulators.

“Coinbase has never had a year without being subject to an enforcement action,” the ICBA wrote.

Coinbase survives

Despite the ICBA’s allegations, Coinbase has survived — and prospered.

Brian Armstrong’s company has operated for over a decade, surviving multiple bear markets, regulatory crackdowns, and market collapses that killed competitors.

In fact, Coinbase remains a publicly traded company on the Nasdaq with full SEC oversight of its financials.

Even so, Coinbase has its blemishes. In February, the company revealed that a group of hackers bribed overseas customer service employees and got away with a stunning $400 million loot.

The OCC did not immediately reply to a request for comment.

Pedro Solimano is DL News’ Buenos Aires-based markets correspondent. Got a tip? Email him at psolimano@dlnews.com.