Financial technology and crypto firms are applying for state or national bank charters

"We have seen a lot more interest. We are working on several applications now" Alexandra Steinberg Barrage, a partner at law firm Troutman Pepper Locke

Financial technology and crypto firms are applying for state or national bank charters in a move that could expand their business and operating footprint, according to industry executives, who report a notable uptick in charter discussions and applications.

"We have seen a lot more interest. We are working on several applications now," said Alexandra Steinberg Barrage, a partner at law firm Troutman Pepper Locke, told Reuters. However, firms are being "cautiously optimistic" as regulatory agency leadership changes unfold.

This year has seen a surprising surge in bank charter applications, contrasting with the previous lull. The shift coincides with the Trump administration's more crypto-friendly stance and the evolving regulatory landscape.

Typically, becoming a bank subjects firms to stricter regulatory oversight, which can be a deterrent. However, it can also reduce borrowing costs and enhance legitimacy. Bank charters allow firms to lower their cost of capital by accepting deposits, yet accessing these is a major point of contention in the crypto community.

For some time now, various cryptocurrency firms have resisted becoming banks due to the regulatory oversight that comes with it, choosing instead to follow the industry's ethos to further decentralize and improve access to financial services to unbanked or underbanked individuals.

However, several cryptocurrency firms, including Paxos, Anchorage, and Protego have become federally regulated crypto 'banks' after securing a federal trust charter through the U.S. Office of the Comptroller of the Currency (OCC).

Clocktower Technology Ventures completed a $483 million merger with Health Insurance Innovations to form a blank-check firm, and Sygnum obtained a Swiss bank charter and secured $58 million in funding to become a unicorn.

Meanwhile, Kraken and Avanti have secured Special Purpose Depository Institution charts in Wyoming, making them state-regulated crypto banks.

Historically, new bank charters have been rare. Between 2010 and 2023, regulators approved an average of only five annually, compared to 144 per year from 2000 to 2007, according to S&P Global.

Applications dwindled due to low interest rates, profitability concerns, and regulatory hurdles. The Federal Deposit Insurance Corporation (FDIC) and Federal Reserve officials have signaled support for streamlining the process. However, setting up a new bank remains expensive, with costs ranging from $20 million to $50 million, according to the report.