The OCC Charter Loophole: An Illegal Hold on Community Banking?

Episode Summary

Wrestling Payments kicks off 2026 with a critical conversation. Host Joe Casali is joined by Brian Laverdure and Mickey Marshall from the Independent Community Bankers of America (ICBA) to unpack the growing regulatory gap between fintechs and traditional banking. As non-banks rapidly expand into mortgage lending and payments, community institutions face an uneven playing field—and the stakes are rising fast.

Mickey breaks down how the OCC's National Trust Bank charter has become a backdoor for crypto companies to issue stablecoins without standard bank supervision, FDIC insurance, or community reinvestment obligations. Brian walks through the legislative landscape and explains why the current rulemaking race will define the future competitive environment for community banks. Together, they paint a sobering picture: if deposits migrate from local banks to stablecoin wallets, the capital that funds small business loans, mortgages, and local economic growth disappears with them.

This episode is a must-listen for anyone in community banking or payments. The message is clear—education and advocacy aren't optional anymore.

Guests-at-a-Glance

Brian Laverdure Vice President, Payments and Technology Policy, ICBA Specializes in digital asset policy and cross-border payment frameworks for community institutions. LinkedIn 

Mickey Marshall Vice President and Regulatory Counsel, ICBA Legal expert navigating payments regulation, novel bank charters, and cryptocurrency regulatory challenges. LinkedIn 

To hear this episode and many more like it, listen here or subscribe to Wrestling Payments on Apple Podcasts, Spotify, or anywhere else you listen to podcasts. For show notes, transcripts, and other resources visit www.wrestlingpayments.com.

Host: Joe Casali, EVP, NEACH #wrestlingpayments #wrestlingpaymentspodcast #paymentspodcast

Transcript

The OCC Charter Loophole: An Illegal Hold on Community Banking- NEACH - Wrestling Payments - Mickey Marshall, Vice President, Regulatory Counsel & Brian Laverdure, Vice President, Payments and Technology Policy 

Season 4, Episode 1

[00:00:00] Brian Laverdure: everyone was really looking to the US and they were looking to the US because the most stablecoins in existence referenced the US dollar. Why did they reference the US dollar? Because the US dollar is king, right? We are the world's reserve currency.

[00:00:13] Brian Laverdure: So basically all stablecoins in existence, almost all of 'em, are dollar referenced. So there was a lot of anticipation from the rest of the world to see the US do something. ​

[00:00:54] Hey, welcome to Wrestling Payments. Today we have a very special episode with, two of my new friends, one an old friend, and one a new friend from ICBA talking about, a really interesting topic in the world of banking.

[00:01:10] Brian Laverdure: as title would suggest, I pretty much focus all of my time exclusively on digital assets, policy issues, but I also, have cross-border payments under my wheelhouse as well.

[00:01:19] Joe Casali: And Mickey.

[00:01:21] Mickey Marshall: Hi, I am Mickey Marshall. I'm a Vice President and Regulatory Counsel at the Independent Community Bankers of America, work on payments issues, novel charters and cryptocurrency. Along with Brian. Happy to be here for this conversation.

[00:01:34] Joe Casali: Well, excellent. why don't you, if one of you wanna start or both of you wanna start, it's up to you. who is the ICBA?

[00:01:41] Mickey Marshall: Sure. So the ICBA, we are an association of community banks. so we traditionally represent the smaller side of the banking sector. you know, these are local banks. In local communities. They do a lot of small business lending, small farm lending. They tend to have. You know, smaller branch footprints than your typical regional or national banks do.

[00:02:03] Mickey Marshall: And our job is basically to make sure that they're not forgotten about in Washington and that their voice is represented in the legislative process and the rulemaking process. So when you have regulators coming out with complex new rules, we want them to account for the fact that there are still small institutions in this country that are.

[00:02:21] Mickey Marshall: Playing an important role in their communities and they need, you know, their own set of compliance requirements because what works for the very large banks doesn't always work for them. And you know, that's what it's our job to convince Congress and the regulators.

[00:02:34] Joe Casali: Hmm. And, and how, how many members do you have about.

[00:02:38] Mickey Marshall: so we represent a pretty good portion of the banking industry. Most banks are small. so we represent several thousand community banks nationwide, which again, is gonna be a majority of the community banks that are out there in the country.

[00:02:51] Joe Casali: Excellent. Excellent. so this is, we're here, to talk a little bit about, really interesting topic, things that are going on. I wanna do some background first. So what we're talking today about is the intersection of. FinTech and banking, and I pose it that way because what we're seeing is, it's not necessarily an intersection sometimes.

[00:03:14] Joe Casali: sometimes the fintechs are, are maybe, I guess in, in, which I could agree with, the fintechs are, are taking a bigger and bigger role in banking a role that they're, There, there's just a different set of rules, for fintechs versus financial institution. But let's, do, do you guys have any examples of, you know, before we get into the main event, the, the places where, fintechs has taken charge?

[00:03:40] Joe Casali: And I can, I can give you a quick example of what I'm saying. I was at the clearinghouse event a couple of weeks ago and they, you know, they made an announcement that, and it wasn't an announcement, it's just a fact. The fact that. fintechs, the banks used to handle all the lending, all the mortgage lending.

[00:03:55] Joe Casali: They were the top, eight lenders in the country. And now only two of the top eight lenders are financial institutions, which is an, you know, it's not an intersection. It's more of a takeover. do you guys have any examples of other things like that?

[00:04:11] Mickey Marshall: Yeah, I mean, I, I think you've seen it in a lot of sectors and I'll, I'll start even just talking about the home mortgage segment. I think a big part of that theme there is that it's more attractive in some cases to lend from a non-bank perspective because you don't have the same regulatory and supervisory requirements that a regulated bank does.

[00:04:30] Mickey Marshall: so for example, in the home mortgage space, if you are a non-bank, you're not subject to the Community Reinvestment Act, which all banks are. and so that right there is an immediate competitive advantage you have because it's one less level of regulatory compliance. and so, yeah, I mean we've seen this in mortgage lending.

[00:04:48] Mickey Marshall: you've seen it a lot in the payment space. you've had sort of non-banks there, PayPal. square, different types of wallets that allow customers to process payments. That used to be a solely bank function, but now it goes to a less regulated space. you know, and I'm, I'm sure there's other examples we could think of, but even, you know, consumer lending also has gone into a lot of, you know, non-banks.

[00:05:10] Mickey Marshall: you've seen, you know, with some of these different charter types, like the industrial loan company charter. You've seen large automakers. Now that is a bank charter, but it has some special carve outs being exempt from the bank holding company act, for example, that allows, you know, non-bank firms or non-financial firms to own a bank charter and engage in lending.

[00:05:31] Mickey Marshall: so I think, you know, around the edges, you've definitely seen more competition enter that is from non-traditional entities and non-bank entities.

[00:05:42] Joe Casali: No, I, I agree. I agree totally with that. let's, Let's slide over a little bit to recent developments. So, over the summer we saw, the passage of the Stable Act. Stable Act.

[00:05:57] Brian Laverdure: Genius Act.

[00:05:59] Joe Casali: Brian, you know a lot about that. Do you wanna, chat a little bit about that genius? That's right. Sorry.

[00:06:06] Brian Laverdure: Yeah. So the, the Genius Act was passed, in July of this year. this was a, a landmark piece of legislation that, created, a special subset of payment sta of, of stablecoins called payment stablecoins. so with this, we now have at least a rough framework, for how payment stablecoins, should be regulated within the United States.

[00:06:29] Brian Laverdure: I say rough because of course the, the passage of Genius Act just set off. What's going to be a really a, a race to the finish line? the regulatory agencies have a number of rulemakings that they need to initiate and complete ahead of the, official date of enactment, which is going to be, or rather, the effective date of the act, which is January 18th, 2027 or 120 days post final rules.

[00:06:56] Brian Laverdure: So basically what, what that all means is next year. in particular, it's going to be a very, very, very busy time in terms of, the agencies putting out requests for comment, gathering, public feedback, digesting that, and then creating the final, regulatory framework.

[00:07:13] Joe Casali: So I, I recently had a couple folks talking about, stablecoin and how, how exciting it is. But, from, from the regulatory perspective, As I understand it, it's, gonna be a lot of state, regulators if they've decided to, get into that area. Otherwise, it's gonna default to the Federal Reserve.

[00:07:32] Joe Casali: but it really is in the middle of rulemaking right now. So, regulators are trying to figure out where, where are they, what, what are the regulations gonna be? I think we all know the, the basics of it as far as, they're gonna be required to anyone who issues it is gonna be required to, have dollar for dollar, liquid availability, typically in a, a treasury.

[00:07:56] Joe Casali: and they're gonna be audited on a regular basis, examined, some of the bigger folks. So it's not, it's not like a everyone's brand new, right? The, some of the bigger folks are gonna be regulated by the Fed. Some of them are gonna be regular, regulated by states. And I, I know, just anecdotally, we had a conference just recently and, there was a fed speaker on Stablecoin.

[00:08:20] Joe Casali: He could not finish his presentation because all the folks attending the event peppered him with questions. What's this? How's this gonna work? any, any cleanup there on what I said? Is there anything that, that I'd said wrong or could be better explained?

[00:08:35] Brian Laverdure: So, yes, it, it's right. The, the rulemaking, just started, it, it started with, our customer coming from the Treasury Department, that came out, I believe, middle of August. having to do with. using innovative technologies to detect illicit finance and digital assets. that comment period closed on October 17th.

[00:08:53] Brian Laverdure: but then there was at the same time another one, much more substantial. One. It was a notice of proposal rule making that came from treasury that basically touched on every single important element, within the Genius Act. so this, is soliciting public comments on how. The federal government should approach.

[00:09:12] Brian Laverdure: what, what should determine parity in terms of the federal and state regulatory frameworks? how should they think about, stablecoin issuers posing a material risk to the US financial system? And one question is, of particular, I'd say community bankers. treasury posed questions about how they should define key words in the interest prohibition that was established with the Genius Act.

[00:09:38] Brian Laverdure: So, so payment, stablecoin issuers, I, we get really stressed that point. The issuers are prohibited from paying interest or yield, solely in connection, withholding a payment stablecoin, that does not extend to. Intermediaries like crypto exchanges, and crypto exchanges. Of course, today they're actually doing that.

[00:09:57] Brian Laverdure: they're offering what some of them term rewards, which is basically like interest or yield for, depositing your stablecoins on their platform. so there is a lot of really critical rulemaking that bankers need to pay attention to, in the coming months.

[00:10:15] Joe Casali: I, I have nothing else except the main event. So, let's, let's talk a little bit about this. I know for NEACH when, we, we, we respond to requests for comments or any sort of regulatory rulemaking, very demure, and we're very, you know, we don't wanna, rock any boats. Even though we may wanna rock a boat and not saying anyone's rocking boats, but let's, let's talk about, the situation where, a non-financial institution is applying for, a limited.

[00:10:49] Joe Casali: Is it a limited bank charter, from, the OCC.

[00:10:54] Mickey Marshall: Sure. So yeah, this is, a trend we've been seeing recently in this space. So the OCC has a charter type called the National Trust Bank Charter. traditionally this was a charter limited to trust departments, right? It was for banks that provided custodial services, fiduciary services, asset management, that sort of thing.

[00:11:17] Mickey Marshall: it didn't really compete with traditional commercial banks because it's just a different business. If you're managing trusts in estates, that's different than the business of, you know, taking deposits and making loans, commercial banking. but this is changing now. so there was an OCC interpretive letter 1176, and that expanded the potential powers for these national trust banks to certain non-fiduciary activities including non-fiduciary custody.

[00:11:47] Mickey Marshall: this was a letter that was done without any formal rulemaking, without a change in statute. But like any loophole, it sort of becomes, it swallows the whole rule. and that's what we're seeing here with some of these cryptocurrency companies. So you've had a number of applications from crypto companies.

[00:12:05] Mickey Marshall: You've had some prominent names in the space, like Coinbase. Circle crypto.com. Stripe has applied for one of these charters. There's other applicants as well, Sony, Fidelity National Trust, and all of these are cryptocurrency or payments focused companies. And what they're proposing to use this charter for is basically to facilitate the issuance of a stablecoin.

[00:12:31] Mickey Marshall: in some cases, the national trust that they're proposing to create would be the issuer of the stablecoin itself. In other cases, that's less clear. but in all cases, they would manage, they would use this charter to manage the reserves of the. Stablecoin. and so again, what that means basically is we talked about how stablecoins are backed up by, you know, either cash or by, you know, treasury securities or other, you know, very liquid assets.

[00:12:57] Mickey Marshall: and that's what these companies would do is they would use these non-fiduciary custody powers, to manage those reserves to facilitate a stablecoin being issued. Our concern is that to a customer that starts to look like a deposit like product, because some of the, applications for example, contemplate well, you know, or could we use this to apply for a master account?

[00:13:24] Mickey Marshall: Could we use this to allow customers to, Access the funds in their stablecoin wallet via a debit card. so to a customer, you're getting a product where you can now easily send this to another third party. you can potentially access it with a debit card, that looks like to a customer. It looks like a deposit product.

[00:13:46] Mickey Marshall: And, and now coupled that with the fact that they see this is an OCC charter. It's a, it's a, you know, the National Bank regulator. It says, you know, this is a national trust bank. I must have the same productions I do at a traditional bank. And I think our point of view is that's just not the case.

[00:14:04] Mickey Marshall: so the balances in these wallets for these stablecoins would not be protected by FDIC insurance. and then the other, I think salient difference is the National Trust Bank Charter or the National Trust Bank is exempt from the definition of a bank in the bank holding company Act. and so the practical consequence there is.

[00:14:26] Mickey Marshall: For a bank holding company, the parent of one of these trusts, or the parent of a bank rather, you would have Federal Reserve supervision at the holding company level. and so that would be the Federal Reserve, making sure that the parent company is engaging only in permissible financial activities and, you know, has the financial resources to act as a source of strength.

[00:14:48] Mickey Marshall: If its depository institution subsidiary becomes stressed with the National Trust Bank charter. Because of that bank holding company Act exemption, you don't have federal reserve supervision. And so the parent companies of these national trust banks are not going to be supervised at that, you know, consolidated holding company level.

[00:15:08] Mickey Marshall: We don't know that they're, you know, well situated to serve as a backstop if, if the National Trust Bank becomes stressed. and then number two, they're not constrained by the limitations on only engaging in financial activities like a bank holding company would be. And so this opens the door to a wide array of commercial firms, you know, technology firms, you know, retailers even could potentially look at this charter.

[00:15:34] Mickey Marshall: because they're not limited to those activities that are financial in nature. so again, when you talk about non-bank competition in the banking industry. You know, we see this charter as a way to get a lot of the, you know, the powers of a bank to take deposits, but without incurring any of the same supervision, without having community reinvestment act requirements.

[00:15:57] Mickey Marshall: and you know, if this starts to drain deposits out of the banking system, you know, into these stablecoin wallets at these national trust banks. We think that's gonna have a harmful impact on the communities our members serve. you know, there was a treasury report recently that estimated that up to $6.6 trillion of bank deposits could flow into stablecoins.

[00:16:18] Mickey Marshall: I don't know that $6.6 trillion is gonna be the number, but if it is in the trillions, I mean, that's a substantial amount of deposits that now. Aren't going to be recycled in those communities in the form of small business loans, farm loans, home mortgages. they, they're just going to go sit in treasury securities in these stablecoin wallets and they're not gonna have that same positive economic impact they would if they were deposits at a community bank being lent.

[00:16:43] Mickey Marshall: So I think that's really our concern here from these institutions is, you know, that they're going to really drain a lot of deposits out of communities and not really contribute a whole lot back.

[00:16:55] Brian Laverdure: And if I could just add to that like it, it doesn't even need to be. trillions for banks to potentially see an effect. Right. Mickey referenced that report that came from the Treasury Department earlier this year. There's a more recent one from the Kansas City Fed. I believe it came out in August that just looked at a modest increase.

[00:17:12] Brian Laverdure: as it is today, like there's approximately 300 billion in stablecoins. So the Kansas City Fed, looked at what, what happens if they just grow to 900 billion, right? So, so far less than some of the, the higher estimates that we're seeing floated. Just going from 300 to 900 billion, right? If that 600 billion increase comes from commercial bank deposits, that could lead to a $325 billion reduction in lending capacity.

[00:17:42] Joe Casali: D does anyone wanna take a shot at explaining, why that is for, for the, I mean, I think my audience sort of knows that, but when you talk the difference between a bank deposit and a stablecoin, that must be. Backed up by, a treasury. It's, it's the ability, and I'll, I'll take a shot. I, I kept talking.

[00:18:03] Joe Casali: it's the ability for an institution, a community institution, to take in those funds and lend them to other people in the community. It's like a, a wonderful life. You know, he said when they came to take all the money, well, your money isn't here. It's in his house. And in that house that is cut off once it becomes a stablecoin that those funds correct.

[00:18:25] Brian Laverdure: Well, I mean, according to the Genius Act, payment, stablecoin issuers cannot re ate, which is that means line, right? They cannot re ate the reserves. Right. So they are designed for the assets to always be there, right? When users go to redeem their stablecoins, if they were to re ate, then you could end up with a situation where users go to redeem their stablecoins and

[00:18:51] Joe Casali: Sorry.

[00:18:52] Brian Laverdure: comes up short,

[00:18:53] Joe Casali: Right.

[00:18:54] Brian Laverdure: So yeah, like payment stablecoin issuers cannot meet those lending needs, right?

[00:19:01] Joe Casali: And this really is new territory. There's no other geography that has a stablecoin ecosystem. Is there, I mean, this is pretty new. I mean, not that they don't exist, but to this degree, I mean, everyone's interested in it. It's, Ooh, it's the exciting, shiny thing now. I saw a chart again at that clearinghouse event where the use of stablecoins has, has, is going just through the roof.

[00:19:32] Joe Casali: But it's interesting. Do you guys wanna talk about what stablecoins could be used for and maybe what they are being used for? Do, do, do you have knowledge on that?

[00:19:45] Brian Laverdure: Yeah, I can take a crack at that so one, maybe we, maybe we could start with the global regulatory framework. I think it is generous to say that it is extremely patchy. you know, these are new assets, new technologies. So when you look at the rest of the world, most of the rest of the world with the exclusion of some of the more advanced economies are really struggling.

[00:20:04] Brian Laverdure: And a lot of 'em have not even attempted to try to come up with a regulatory framework to control crypto asset activity within their borders. But we do have some activity from the advanced economy. So, Europe, they've advanced, pretty robust regulatory framework so far. We're seeing similar efforts in Japan, Singapore, and so on and so forth.

[00:20:24] Brian Laverdure: But everyone was really looking to the US and they were looking to the US because most stablecoins in existence referenced the US dollar. Why did they reference the US dollar? Because the US dollar is king, right? We are the world's reserve currency. So again, of the approximately 300 billion. Worth of stablecoins in circulation, approximately 277 billion referenced the dollar.

[00:20:50] Joe Casali: Right? So basically all stablecoins in existence, almost all of 'em, are dollar referenced. So there was a lot of anticipation from the rest of the world to see the US do something. so now that we have the Genius Act, right now, the baton is being passed to the regulators to flesh this out. And do you know? so the chart said it's rising right now. It was my assumption that stablecoins today are used to buy other, not stablecoins, but maybe crypto assets. That's a whole different, that's a whole different podcast.

[00:21:30] Brian Laverdure: Well, that is the primary use case right now, right? That was why stablecoins were created in the first place you needed. Some sort of asset to maintain a stable value in an otherwise highly volatile ecosystem, right? I mean, I think your viewers are probably at least casually familiar with the price of Bitcoin, right?

[00:21:47] Brian Laverdure: You can turn on CNBC at any point of of the day, and you'll see it's price constantly fluctuating. It's constantly fluctuating because there's nothing behind it, right? Bitcoin, like so many other crypto assets, the value is just whatever the market thinks it should be. Maybe one day it's a hundred thousand.

[00:22:03] Brian Laverdure: Maybe the next day it's 90,000. But a stablecoin at its most basic right? It is supposed to be one token equals $1, right? Because there should be something backing it. and when you go to redeem that token, you should be able to get those, reserve assets. But policymakers have been so interested in stablecoins, right?

[00:22:24] Brian Laverdure: Because they are the nexus between all the volatility of the crypto ecosystem. In the banking system, right? Because they have those connections by holding cash deposits, by holding treasuries. So know, in a worst case scenario, if something goes wrong with a stablecoin or the whole stablecoin ecosystem, then cracks could spread to the broader crypto ecosystem.

[00:22:45] Brian Laverdure: And those cracks in turn could spill over into the banking system. So that's why this particular asset, maybe more so than any other in the crypto asset ecosystem, has attracted so much attention, not just domestically but worldwide.

[00:22:59] Mickey Marshall: Yeah, and if I could just talk to, you know, the potential for disintermediation here. stablecoins, like Brian said, were created really to facilitate transactions in other cryptocurrencies. but that's not all they could potentially be used for. So I think if they remain confined to that relatively narrow use case, then there's not really a big threat to a bunch of deposits leaving the system to go to that.

[00:23:23] Mickey Marshall: I think the threat is, you know, if adoption becomes much more mainstream. For that to happen, they have to find other use cases like, you know, cross border payments or even domestic payments, right? I mean, if they can move money in a way that's somehow cheaper or more convenient than the traditional payment rails, or, you know, credit card networks, then there's now potential for a much broader kind of base of adoption.

[00:23:48] Mickey Marshall: And I think if that's the scenario we go to, that's where the effects of disintermediation and deposit outflow. They get much worse. and I think that's what makes the stablecoin concerning to us is, you know, Bitcoin because of its volatility is not so useful as a payments instrument, I think is what's been discovered.

[00:24:07] Mickey Marshall: But you know, something like the stablecoin might have a more mainstream use case there.

[00:24:12] Joe Casali: Mm-hmm. So let me, I'm gonna summarize a little then we're gonna, move a little bit on. so generally talking about FinTech, ent entries into the banking world, it's, it's, it's objectively unfair from the amount of scrutiny a financial institution faces. Versus the amount of scrutiny FinTech faces.

[00:24:32] Joe Casali: Just, I, you know, if we had someone on the other side, on this call, it would, I think it would still be objectively, just unfair. stablecoin from a stablecoin perspective, the use case of international transfers is like, yeah, easy. I, we, I, I struggle in thinking about walking into a McDonald's and.

[00:24:56] Joe Casali: Buying a burger with, with my stablecoin, I struggle. There's so many other options. What would benefit using a stablecoin? I'd love you to talk about your response letter. for this particular thing, I, I, it's maybe you want to talk about just the general position you have for any of these charters.

[00:25:15] Joe Casali: I, I had the, I just read the letter again. I don't have it in front of me. Do, do you wanna outline just a couple of those points?

[00:25:23] Mickey Marshall: Yeah, so I think the first big point is we think that the way the OCC has gone about reintroducing the statute is just, it's not procedurally correct, right. For there to be a major substantive policy change to say, you know, these banks that were once traditional trust banks, now they're going to be the gateway for cryptocurrency into the banking system.

[00:25:46] Mickey Marshall: That's a major policy change that we think should require an act of congress. Or at the very least, a formal rulemaking. So that's one of our arguments is really to try to get the OCC at a minimum to define through a rulemaking what the powers of this charter are. And I think some of the things that we would like to see addressed there, and we make these arguments in our, in our objections to each of these charters as well.

[00:26:10] Mickey Marshall: but we would like to see clearer guidelines for how does the OCC supervise these institutions? Right? How do they make sure. They're holding the reserves that they say they're holding against their customer's, you know, deposits. how do you know if one of these institution fails? What are the occs procedures for resolving it?

[00:26:29] Mickey Marshall: Right. Traditionally, if a bank fails, it goes to the FDIC in this case, because it's not FDIC insured. The OCC would have to be the receiver. Is it equipped to do that? you know, I, I think that's something that we would like to see a rulemaking address. so, you know, we also talk about some of the, you know, the blurring of the lines of, you know, bank activities and, and what, you know, the, you're allowing non-banks to do.

[00:26:56] Mickey Marshall: Are you allowing them to offer something that to a customer looks like a traditional demand deposit. Can be accessed with a debit card but doesn't have those same protections of FDIC insurance, and you know, does the customer know that when they're getting into this? Us. so I think those are some of the objections we've made in a lot of our comment letters.

[00:27:17] Mickey Marshall: you know, we've also talked about, as I mentioned earlier, the lack of Federal reserve oversight at the holding company level. but I think for the most part, what we want to see here is for a major change like this to happen, it really should require an act of Congress and it shouldn't be done through an interpretive letter.

[00:27:35] Mickey Marshall: We don't think that's the way to, you know, have a major overhaul to what this charter can do.

[00:27:42] Joe Casali: Brian, anything.

[00:27:43] Brian Laverdure: Oh, no, I, I think Mickey really summed it up well. and I, I, I, I would underscore those concerns about resolution, right? We, we have to think about, you know, the entities looking at this. I mean, these are very large, complex organizations. you know, that could be issuing crypto assets that could circulate anywhere in the world, right?

[00:28:01] Brian Laverdure: So if something goes wrong. It is going to be extremely complicated to get these things unwound properly. so it is, it is definitely a very pressing concern for us.

[00:28:17] Joe Casali: I, you know, every time I hear this, argument because it's a, it's a common argument that, fintechs don't fa say, face the same regulations as banks. Why isn't anyone, and, and sometimes I'm naive, so please, no chuckling. why have we just decided to start regulating fintechs more

[00:28:37] Joe Casali: anyone?

[00:28:38] Mickey Marshall: you know, well, I mean, I think it's, it's, it's, look, our, the banking system was, I mean, the, the way the regulatory environment evolved is it evolved in layers. It evolved over the years, right? Each new layer of regulation was invented as a response to some. Previous failure or crisis. And I think, you know, as those layers have added up, it's kind of natural for people to want to try to find ways around that.

[00:29:05] Mickey Marshall: Looking at less regulated charters. And the way I see it is where we're at with cryptocurrency now is we're sort of in the wild west, right? They're looking to do a lot of the same services that banks do, but unencumbered by all of those layers of regulation that have evolved over the years. I think unfortunately what will happen is you will see failures in the space, just like we saw failures in the banking industry.

[00:29:32] Mickey Marshall: And those failures, I think will be what is the catalyst? For layers of regulation in the cryptocurrency space. That's kind of how I see this evolving. And you know, a lot of the risks are the same and it's just unfortunate that we have to kind of learn hard lessons over and over again. But even just what is the classic risk to a bank, right?

[00:29:52] Mickey Marshall: A run on the bank, that risk is still present. In the case of these cryptocurrency focused national trust banks, if you have a lot of depositors who put dollars in and get the stablecoin out. Suddenly change their mind and say, you know what, I, I don't want the stablecoin. I want my dollars back.

[00:30:10] Mickey Marshall: If you have a large volume of those redemption requests at once, it's the same problem a bank faces. that stablecoin issuer or that custodian of those reserves has to now liquidate a large volume of its reserves all at once. Now, again, in theory, that's supposed to be safe because, well, they're treasury securities, you know, they're the safest asset you can get.

[00:30:31] Mickey Marshall: But when you're talking about an institution that's potentially tens or hundreds of billions of dollars in scale, a large liquidation even of a very safe asset can cause a big dislocation in the price. and so now you are in a scenario where once that run happens. It's liquidating treasuries into a market where there may not be demand for those treasuries.

[00:30:52] Mickey Marshall: So now it's not getting a dollar back for every dollar that it has in its reserve. And you know, the customer we think is unfortunately gonna be left holding the bag there because they don't have the same protections they do in a bank deposit.

[00:31:05] Joe Casali: I think that's exactly right, but isn't there, I, no one ever talks about the other side of it. Isn't there a gas fee isn't there? If I make a transaction, there's a fee for that transaction. I mean, it's not, it's not free. Right. And no one ever talks about the, I know when you, like if I use the stablecoin to buy an NFT of my cat, there's a fee for that.

[00:31:30] Joe Casali: There's a gas fee. No one's talking about it. The fee that it's gonna cost for that exchange, let alone the possibility that that dollar isn't worth a dollar. Yes.

[00:31:43] Brian Laverdure: Yeah, so I mean, you're right, like every blockchain ecosystem, they have fees, right? Because e, every, every sort of activity on in a blockchain ecosystem requires computing power. So you have to pay for that, whether you're. Doing like a straightforward, you know, transaction like that right? To, to buy an NFT or you're deploying some sort of, you know, complex smart contract to support a new decentralized finance application.

[00:32:06] Brian Laverdure: Right? Everything has a fee. but I, I would say like this is getting attention. I mean, it was only earlier this week that the OCC issued yet another interpretive letter, 1186, to permit banks to hold crypto assets in order to pay gas fees. For permissible crypto related activities, and also to test systems, right?

[00:32:29] Brian Laverdure: So if a bank wanted to hold some crypto assets on their balance sheet to then test a new wallet system they wanted to deploy per this OC interpretive letter, that's okay.

[00:32:40] Joe Casali: That's really interesting 'cause didn't we see earlier this year where a bunch of interpretive letters just disappeared because someone wrote another letter that said those don't count anymore. Yeah.

[00:32:51] Brian Laverdure: So under the Biden administration, there had been a series of statements from the prudential regulators that had limited banks, crypto related activities. So with the new administration, all of those have been pretty much lifted. so in the wake now we're starting to get additional statements, clarifying additional activities.

[00:33:14] Joe Casali: exactly right. exactly right. Okay, so what has been the success rate of. Letters that say, Hmm, we don't think this is a good idea. in the past, any, any, other examples we can look at and say the, you know, the industry responded negatively to these folks getting, a license

[00:33:36] Mickey Marshall: So I, I, yeah, I mean, I, I think what I would liken this most closely to is our campaign we've had against industrial loan companies. so we've opposed commercial ownership of industrial loan companies, which is another kind of niche charter type we. you know, have filed letters in each of those applications, you know, for four General Motors, and so on.

[00:33:56] Mickey Marshall: And, and also we've had, co congress has introduced legislation to close the ILC loophole. it hasn't been enacted yet. but overall, I think so far that campaign has been pretty successful. we've delayed any. New ILC approvals. Really throughout the Biden administration, throughout the first Trump administration, there have been a few financially owned ILCs, but from commercial companies like the automakers, we've managed to delay those applications and prevent them from getting approved.

[00:34:24] Mickey Marshall: And, and the precedent there has been the failure of GMAC, which is, you know, the most notable ILC failure. And it's kind of like, you know, do we want to go down this road again? So that shows that, that these campaigns can be effective. At the very least, they make regulators, you know. Think about it and give them some pause.

[00:34:41] Mickey Marshall: but I think, you know, for the National Trust Bank Charter, you know, this administration is a procr administration. They want to be seen as a procr administration. I think that makes our job a little harder opposing these charters. but it does, you know, it, it says, you know, for anyone out there in the audience that's concerned about this.

[00:35:00] Mickey Marshall: I would urge you to, you know, get involved, you know, right. To your member of Congress, right. To the OCC if you so choose. but those voices do matter, right? I mean, I think they're getting one side of the equation right now. Crypto, they have a big presence on Capitol Hill. They have a big media presence.

[00:35:18] Mickey Marshall: That's the side lawmakers are hearing. they're hearing, oh, this is, you know, it's decentralized. It's the future. It's great. they're not hearing some of the concerns I think that, you know, community bankers have. And so I think that's, you know, that's our job to amplify those. But I think it's the audience too.

[00:35:34] Mickey Marshall: You know, you can go out and, and make those concerns heard so that members of Congress and the regulators are getting the other side.

[00:35:41] Joe Casali: I, I think that's such a good point. I had a, a little story and then I'm gonna ask you if you have anything else to add, at all, and, and some closing, but little story yesterday, we get brew calls all the time. And yesterday someone called and said, oh, a member of Oz wants to, pay their loan payment with their cash app.

[00:36:01] Joe Casali: It's like, you know, another case of a non-bank in a banking field. So that belief that the average person may think, maybe they think that the stablecoin is the next Bitcoin, and all of a sudden they're spending, they're putting all their money into the stablecoins because it's gonna go up. I know it's gonna go up.

[00:36:20] Joe Casali: That, that education is so important. the understanding of what, what it really is has a lot of holes in it. People, people may not know what they're doing when someone says, oh yeah, you gotta get stablecoin. You have to do it. It's interesting. with that, I'll, any closing remarks,

[00:36:36] Brian Laverdure: I mean, Joe, I'll, I'll, I'll just kind of like build on like what she said, like education's really the key key here, right? I mean, from a consumer perspective, education is absolutely essential, right? We know that consumers are being hit with a lot of crypto scams right now. right. Crypto scams that are more commonly known as pig butchering, that is the single largest financial crime in the US.

[00:36:57] Brian Laverdure: So there is definitely an urgent need for consumers to get more education, before they put their money into these assets. But there's also a really urgent need for bankers to be educated. you know, these are very complex technologies that, while they might have like some similarities with the traditional payment systems that they're accustomed to.

[00:37:17] Brian Laverdure: There's some pretty big differences. and it's really important now for bankers to start diving into these details because as we've been talking about all throughout the show, the regulatory rulemaking is underway, right? So if you want your voice to be heard, if you want a regulatory framework that addresses.

[00:37:38] Brian Laverdure: The concerns of community banks, but also, leaves paths open so banks can start to explore whether stablecoins or other crypto technologies have some benefits for them and their customers. Right? It starts with education and then it, it, you know, that has to lead to advocacy, right? So we, we very much encourage bankers.

[00:38:00] Brian Laverdure: Get educated, ICBA is doing our part, to make resources available to bankers. But, you know, I, I know organizations like your also playing a really key role in that as well.

[00:38:11] Joe Casali: So I, I am, I'm doing a quick, you know, a session this year on Stablecoin, but can you talk a little bit, how would they, I mean, you do a lot of writing, don't you? How would, how would I get a hold of some of your writing?

[00:38:24] Brian Laverdure: I mean, we can just send it to you.

[00:38:26] Joe Casali: No, no, no. As a listener.

[00:38:28] Brian Laverdure: So that's why an organization like ICBA is so important, right? 

[00:38:32] Brian Laverdure: It's, it's our job to filter out a lot of the big developments focus in on what is most important for community bankers. So, you know, I know that a lot of the bankers probably don't read all the many, many pages that we write and, with these comment letters, you know, but it's our role to like distill it down and really give them short takeaways.

[00:38:51] Brian Laverdure: Because we realize, right, all community bankers, they have very busy day jobs, right? They're out there in their communities making loans, starting up new businesses, so and so forth. so yeah, we've got a, a, a wealth of resources and we are working to de develop more because we recognize that this education gap, it, it's really critical that we fill it as quickly as possible.

[00:39:13] Brian Laverdure: I.

[00:39:14] Mickey Marshall: Yeah, and I, and I think I'll just chime in with a brief closing thought. You know, I'll give Craig. Credit where credits due. the crypto industry, they've done a good job of telling the story, their story of, of the virtues of cryptocurrency. That's why they've had the successes they've had on Capitol Hill.

[00:39:31] Mickey Marshall: and I think, you know, our response to that needs to be telling our story, telling the story of. You know, if there is a large amount of outflow of deposits into stablecoins, if this becomes a major part of the financial services industry that's going to have adverse effects on communities that banks serve, it's, it's going to translate to.

[00:39:54] Mickey Marshall: Fewer loans and it's going to translate to customers who are now protected by deposit insurance, but in the future they won't be. And so I think raising those concerns with policy makers and making sure that they get that side of the story, you know, that's our role as an industry and, and I think that's what we need to start doing more of.

[00:40:15] Mickey Marshall: you know, because again, I, it, it's ultimately the consumers that will be hurt when one of these institutions eventually fails and, and, you know, we wanna make that, we wanna make sure the customers are as educated as possible to prevent that from happening. That would be my takeaway.

[00:40:29] Brian Laverdure: Thanks. Thank you both for joining me today. please stay tuned and look at the episode. There'll be lots of links in the description. Thank you very much. Have a great day. ​