Marking a significant milestone in the acceptance of cryptocurrency into the world of traditional finance, the Office of the Comptroller of the Currency (OCC) has granted conditional approval for a national bank charter to Erebor Bank, a de novo bank backed by a number of notable Silicon Valley technology firms. The conditional approval is the strongest indication yet that the current leadership of the OCC is supportive of not only of banks engaging in cryptocurrency activities, but banks offering both cryptocurrency and traditional banking services. 

According to the OCC, Erebor Bank plans to target its products and services to technology companies and ultra-high net worth individuals that utilize virtual currencies. However, unlike other cryptocurrency-focused banks, Erebor Bank plans to offer traditional lending and deposit products to its customers, and will obtain deposit insurance from the Federal Deposit Insurance Corporation (FDIC). Erebor Bank looks to provide a combination of private banking, fintech infrastructure and digital asset services. 

In the conditional approval, the OCC determined that a national bank may hold non-asset-backed virtual currencies on its balance sheet to pay transactions fees (also known as gas fees). Specifically, the OCC determined that holding such assets is “convenient or useful” to a bank’s digital asset custody services and, therefore, is permissible pursuant to 12 USC 23 (Seventh) as incidental to the business of banking. This could open the door to other national banks engaging in similar activities, and possibly the OCC approving other crypto-related activities as incidental to the business of banking. 

The OCC’s conditional approval gives Erebor Bank a green light to move forward, but only if it satisfies strict requirements around a number of risk management areas, including:

• Capital adequacy and liquidity

• Crypto-related risk controls

• Governance and compliance

• AML and sanctions compliance

Erebor Bank could become a template for how crypto-focused financial institutions can operate inside the regulatory perimeter. It would be the first real bridge between crypto and full-service banking in the U.S. Whether this is a one-off or the start of a new wave depends on how Erebor Bank navigates the next 12 months.