Ripple Labs has applied to the Office of the Comptroller of the Currency (OCC) for a charter as a national trust bank. If the US GENIUS Act for stablecoins is adopted, that would mean it could choose for its RLUSD stablecoin to be federally regulated. Currently the stablecoin is issued via Standard Custody & Trust, a New York regulated trust bank. We explore the reasons for the application, and an issue related to Ripple Labs’ XRP holdings that could potentially scupper its chance of success.
On X Ripple CEO Brad Garlinghouse said, “if approved, we would have both state (via NYDFS) and federal oversight, a new (and unique!) benchmark for trust in the stablecoin market.”
The obvious question is: why have two banking charters? The simple answer is to hedge its bets and if Ripple believes the stablecoin will grow quickly, it will need to be OCC regulated sooner rather than later.
Ripple has always been keen to serve institutions, and being a national bank would bring added credibility. It already has a solid legal structure with Standard Custody & Trust, which ringfences the stablecoin reserves. We reported on Tuesday that Standard Custody had applied for a master account – a bank account at the Federal Reserve.
Federal Reserve master accounts
A master account brings two potential benefits. For on and off ramping, the bank can make payments directly, rather than using another bank. But it could also allow the bank to hold part or all of its stablecoin reserves at the central bank. That’s something the Trump administration might object to, because it’s keen for most stablecoin reserves to be parked in US Treasuries. It will be interesting to see whether politics influences the decision making process.
The Federal Reserve has published its tiered process on applying for a master account. Banks regulated by the Federal Reserve will find it comparatively easy to get a master account and are regarded as Tier 1. Those supervised by the OCC are Tier 2 and will receive more scrutiny. State supervised banks are Tier3, will have a much more arduous process and are more likely to fail. This tiered system explains Ripple’s dual strategy.
Hedging its bets
Ripple might not succeed in getting a national trust charter. The only such license awarded to a crypto firm so far has been to Anchorage Digital. Even if Ripple succeeds, it could take a long time. And the OCC charter makes it more likely to land a master account.
So the short term strategy is to continue using Standard Custody, and try for a master account. And the medium term strategy is the OCC national trust path.
The GENIUS Act only requires a stablecoin of more than $10 billion to be federally regulated, and Ripple is still a long way off from that. But the application is good advance preparation. If it gets the charter, it could choose to become federally regulated even if the stablecoin is still below the threshold. But once it chooses, it would need to stick with the choice.
Ripple’s XRP “problem”: A banking catch-22
Ripple Labs wants to become a national trust bank, but they have a big “problem”: they own massive amounts of XRP cryptocurrency on the balance sheet.
International banking rules (called Basel III) are tough on crypto. If a bank holds $100 million in Bitcoin or XRP, they must set aside $100 million in capital as a safety cushion. That’s like having to keep a dollar in your savings account for every dollar you gamble with. But it gets worse.
Banking rules also say you can’t count “intangible assets” as real capital. Intangibles are things that you own but can’t physically touch – like brand names, patents, or cryptocurrencies.
So Ripple faces a nasty double hit. They need $100 million in capital to cover every $100 million in XRP holdings. But they can’t count their XRP as part of that capital.
The obvious fix that isn’t simple
Why not just remove XRP from the balance sheet? Problem solved, right?
Well, Ripple has bought lots of companies (Hidden Road, Standard Custody, Metaco, etc). When you buy a company, you often pay more than its assets are worth, with the extra amount classed as “goodwill.” Goodwill is also an intangible asset that gets deducted from capital.
After all these deductions, Ripple Labs might not have enough real capital left to qualify as a bank.
Of course, Ripple has smart people working on this, so maybe they’ve found a solution we’re not seeing and we haven’t viewed their balance sheet. But they also have a simpler fallback option that could make the XRP problem disappear entirely.
Instead of applying through Ripple Labs directly, they could route the federal charter through Standard Custody or another subsidiary. This mirrors how Anchorage Digital operates – it holds the national trust charter as a subsidiary of Anchorage Labs, keeping the parent company’s balance sheet separate from banking regulations.
This subsidiary approach would let Ripple maintain its dual-track strategy: continue operating RLUSD through Standard Custody in the short term, pursue the Fed master account, and if needed, convert Standard Custody (rather than Ripple Labs) into the federally chartered entity. While it avoids the Basel III headache, it only gives Ripple one avenue to a Fed master account.
