Did GENIUS authorize national payments banks?

by Michele Alt, Roman Goldstein, and Patrick Haggerty

Under the GENIUS Act, uninsured national banks are permitted to issue stablecoins. The OCC is considering several applications for uninsured national trust bank charters, some of which likely include plans to issue stablecoins. Some commenters opposed to those applications have argued that national trust banks can’t issue stablecoins.

We don’t wade into that debate here. Instead, we ask, if it were true that uninsured national trust banks can’t issue stablecoins, what type of uninsured national bank could? The answer may be a different type of bank: an uninsured national payments bank, which issues stablecoins but does not take deposits or make loans.

Wait — don’t banks have to take deposits?

That question was at the heart of major lawsuits filed several years ago concerning the OCC’s authority to charter uninsured special purpose national banks (SPNBs) for fintechs. 

In 2018, OCC announced a plan to charter SPNBs that limited their businesses to one of three core banking activities: 

• Taking deposits;

• Paying checks; OR

• Lending money. 
  

State regulators filed suit, arguing that banks, other than trust banks(1), had to accept deposits. 

The OCC ultimately won on procedural grounds, so the uncertainty over the OCC’s authority to charter an uninsured national bank that is not a trust bank remained. Unsurprisingly, given that uncertainty, no fintech ever applied for an SPNB charter.

The OCC is now considering several national trust bank charter applications from crypto firms. The public portions of these applications do not detail the applicants’ proposed activities. But it's likely that at least some applicants plan to issue payment stablecoins under the GENIUS Act. 

BPI and ICBA oppose these applications. They argue that national trust banks cannot issue stablecoins because they are limited to fiduciary and related activities. These arguments echo those over SPNBs: banking, outside of the trust bank context, is all or nothing. If you want to accept deposits, or pay checks, or make loans, then you need a full-service bank. You can’t unbundle a bank.

While the debate over national trust bank authority plays out, GENIUS may have provided another route to national bank stablecoin licensing by ratifying the OCC’s authority under the National Bank Act to charter a different type of uninsured bank: a national payments bank. 

A different type of uninsured national bank

GENIUS defines a “federal qualified stablecoin issuer” as including “an uninsured national bank” chartered by the OCC under the National Bank Act and approved by the agency to issue payment stablecoins.(2) Further, GENIUS directs the OCC to “receive, review, and consider for approval applications from any…uninsured national bank that is chartered by [the OCC] and that seeks to issue payment stablecoins….”(3) 

What kind of uninsured national bank is GENIUS referring to? If BPI and ICBA are correct that national trust banks can’t issue stablecoins, then by process of elimination, Congress must have intended that a stablecoin issuer would be a different type of uninsured national bank: a national payments bank.

Arguably, GENIUS ratifies a view of the OCC’s licensing authority that the OCC itself has long asserted. OCC rules already provide that the agency can charter “a special purpose bank that limits its activities to fiduciary activities or to any other activities within the business of banking. A special purpose bank that conducts activities other than fiduciary activities must conduct at least one of the following three core banking functions: receiving deposits; paying checks; or lending money.”(4) 

Under GENIUS, a stablecoin issuer can’t take deposits or lend money.(5) But it can:

• Issue payment stablecoins;

• Redeem payment stablecoins; and 

• Undertake other activities that directly support these activities.(6)
  

These stablecoin activities fall under the core banking activity of paying checks. Under the Uniform Commercial Code,  a “check” is an order to pay money,(7) and an “instrument may be a check even though it is described on its face by another term.”(8) Like a paper check, a payment stablecoin is an order to pay money.(9) But even if it weren’t, the OCC interprets “paying checks” to mean facilitating payments activity. 

For example, OCC views “issuing debit cards or engaging in other means of facilitating payments electronically [as] the modern equivalent of paying checks.”(10) More recently, OCC has previously expressed the same view with regard to stablecoin issuance: “stablecoins function as a mechanism of payment, in the same way that… checks…convey payment instructions.”(11)

So where does that leave us?

Arguably, with an alternative route to licensing uninsured national banks that avoids the debate around national trust bank powers and gives full meaning to the GENIUS Act. 

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(1) The OCC has the express authority to charter uninsured national trust banks. 12 U.S.C. § 27(a).

(2) 12 USC 5901(11)(B). (3) 12 USC 5904(a). Note that the bank must be chartered before the OCC can approve it to issue stablecoins. GENIUS does not authorize the OCC to charter a bank for the purpose of issuing stablecoins; the OCC must license an existing uninsured national bank.

(4) 12 CFR 5.20(e)(1).

(5) In its letter opposing one of the crypto national trust bank charter applications, BPI proposes notice and comment on “whether the issuance of a stablecoin by a national trust bank (i) constitutes the acceptance of a ‘deposit’ for purposes of the FDI Act, as administered by the FDIC, and (ii) requires that the national trust bank obtain deposit insurance from the FDIC pursuant to the Federal Reserve Act, as administered by the Federal Reserve.” We note that GENIUS defines “payment stablecoin” to exclude any deposit. 12 USC 5901(22)(B)(ii). Moreover, a national bank that takes deposits must be FDIC-insured, 12 USC 222, which would disqualify it from issuing stablecoins. (6) 12 USC 5903(a)(7). Supporting activities include managing related reserves, including purchasing, selling, and holding reserve assets; and providing custodial or safekeeping services for payment stablecoins, required reserves, or private keys of payment stablecoins. Id. A stablecoin issuer will have custody of a newly-minted stablecoin until it transfers the token to the minter.

(7) Per the Uniform Commercial Code, “‘Order’ means a written instruction to pay money signed by the person giving the instruction. The instruction may be addressed to any person, including the person giving the instruction….” UCC § 3-103(a)(8).

(8) UCC § 3-104(f); accord Indep. Bankers Ass’n v. Smith, 534 F.2d 921, 944 (D.C. Cir. 1976) (“Like the form of the check, the form of the account from which funds are withdrawn is also without significance….If future technological innovations render paper checks totally obsolete, section 36(f) will still include within its broad standard those facilities that permit bank customers to perform the traditional banking function of withdrawing funds from their accounts.”).

(9) Per the Uniform Commercial Code, “‘Order’ means a written instruction to pay money signed by the person giving the instruction. The instruction may be addressed to any person, including the person giving the instruction….” UCC § 3-103(a)(8).

(10) OCC, Exploring Special Purpose National Bank Charters for Fintech Companies 4 (“Similarly, issuing debit cards or engaging in other means of facilitating payments electronically are the modern equivalent of paying checks.”).

(11) J. Gould, OCC Interpretive Letter 1174 (Jan. 2021).