MW Crypto firms want the perks of being a bank but without the rules - putting your money at 2008-level risk
By Robert Pozen
With help from Washington, new crypto trust-banks are bypassing guardrails governing traditional banks
Crypto firms are performing bank-like functions, but without strict regulation.
If a crypto firm runs what looks like a bank and operates like a bank, then it should be regulated like a bank.
In the years following the 2008 financial crisis, U.S. regulators spent enormous efforts trying to reduce the risks created by "shadow banks" - financial institutions that perform bank-like functions without being subject to the same regulatory safeguards.
Yet now the U.S. may be creating similar shadow banks in a new form: crypto companies operating with increasing access to the banking system - without many of the requirements applicable to traditional banks.
The expansion of the crypto industry into important banking functions is happening gradually through a series of regulatory and legislative decisions. These efforts appear to be driven partly by the enormous political contributions of crypto companies, which spent roughly $119 million to influence federal elections in 2024 - almost half of all corporate funds contributed in that election cycle, according to an August 2025 report by the advocacy group Public Citizen.
Meanwhile, individual crypto executives have made substantial personal donations to President Donald Trump's political efforts, including about $1 million from Jesse Powell, co-founder of the cryptocurrency exchange Kraken.
By using national trust charters, crypto firms can avoid most banking requirements applied by states.
One significant development is the growing effort by crypto firms to obtain national trust bank charters. During the past year, the Office of the Comptroller of the Currency has granted full approval to one crypto firm, and conditional approval to at least four others, to establish a national trust bank. These trust charters allow crypto companies to act as the custodian and investment manager of their client assets across the country.
Trust banks are not subject to the same capital and liquidity rules as commercial banks, partly because trust banks are not allowed to accept deposits. But trust charters give crypto firms a foot into the banking door, including the imprimateur of the OCC. Moreover, by using national trust charters, crypto firms can avoid most banking requirements applied by states.
Another important development involves access to the Federal Reserve's payments infrastructure. On March 4, the trust bank owned by the Kraken exchange for crypto trading gained direct access to the Fedwire to settle U.S. dollar DXY transactions. Access to these payment networks has traditionally been limited to regulated banks because they are trusted members of the U.S. financial system.
Allowing crypto institutions to connect directly to the Fed's payment infrastructure raises difficult questions. If a crypto firm can move funds through the same payment rails as traditional banks, it begins to function like a bank in practice - even if it is regulated differently than traditional banking institutions.
After intense lobbying from the crypto industry, Congress recently established a new regulatory framework for stablecoins - digital tokens that are designed to maintain a stable value relative to the U.S. dollar. Stablecoins are increasingly used for financial transfers and trading - as well as money laundering by criminals. Customers deposit dollars with issuers of stablecoins and receive a like number of the coins.
In many cases, stablecoin issuers and their partners are paying "rewards" to these customers - which resemble interest payments on bank deposits. But these issuers are not subject to the same safeguards that apply to banks issuing deposits. Traditional banks must maintain strong capital buffers, comply with rigorous supervision, and provide deposit insurance to protect customers.
Taken together, these developments point toward the gradual emergence of a parallel financial system built around crypto firms performing bank-like functions. They may take custody of assets, move money through payment systems and issue instruments resembling deposits - without the same protections that the public expects from banks.
Regulators and legislators must avoid the mistakes that contributed to the 2008 financial crisis.
Supporters of these changes argue that bringing crypto firms into the regulatory system is better than leaving them outside it. That argument has some merit. Clear regulatory frameworks can improve transparency and help reduce the risks associated with an emerging industry.
Nevertheless, regulators and legislators must avoid the mistakes that contributed to the financial crisis. Prior to 2008, many mortgage-related institutions operated through lightly regulated entities that engaged in bank-like activities without the same safeguards as traditional banks. When those institutions came close to insolvency, turmoil quickly spread throughout the broader financial system.
The lesson from that period is straightforward: If an institution performs the economic functions of a bank, it should be regulated like a bank. Otherwise, the system creates incentives for regulatory arbitrage, in which firms migrate toward structures that minimize governmental oversight of risks.
Crypto firms seeking bank charters and payment system access should face many of the same regulations applicable to traditional banks. Those include robust capital standards, significant liquidity requirements and strong customer protections. In addition, Congress should either ban the payment of "rewards" by stablecoin issuers and their partners or, alternatively, subject them to similar regulation of bank deposits.
In dealing with the rise of crypto assets, regulators and legislators need to balance the stability of the banking system against the need to support financial innovation. This balance should be achieved by careful analysis of the expanding economic functions being performed by crypto firms, and not by their massive political contributions. Otherwise, the United States may once again find itself confronting the dangers of a shadow banking system - this time built around crypto assets instead of mortgage-backed securities.
Robert Pozen is a senior lecturer at MIT Sloan School of Management and a former president of Fidelity Investments.
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Also read: MrBeast's finance app for kids is backed by a bank that's faced regulatory scrutiny and a fintech partner's failure
-Robert Pozen
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March 20, 2026 08:10 ET (12:10 GMT)
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