The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Pranav Kiran

TORONTO, July 21 (Reuters Breakingviews) - Dollar-backed stablecoins could set up another showdown between the Federal Reserve and Donald Trump’s administration. Firms like $55 billion Circle Internet Group CRCL.N and Ripple hope to bypass traditional lenders by applying for bank licenses. But a bigger prize would be to bag a so-called master account with the central bank.

The U.S. House of Representatives last week passed the GENIUS Act, which outlines how issuers of digital dollars will be regulated. Circle, Ripple and others must back tokens with high-quality liquid assets and publicly disclose their reserves. The hope is that it will give businesses the confidence to accept stablecoins for mainstream payments.

Like most fintech startups, crypto firms are currently limited in how they operate. That’s why fintechs generally team up with regulated banks to offer services in a practice popularly known as “Rent-a-Charter”. This allows banks to lower the cost of acquiring new customers by 82.5% to 95%, according to Oliver Wyman, but keeps the fintech firms dependent.

The GENIUS Act lets stablecoin issuers act as custodians of their own tokens, provided they are overseen by a federal regulator. That’s one reason crypto firms are applying to the Office of the Comptroller of the Currency $(OCC)$ to become banks. As well as saving on custody fees, licenses allow them to offer services like settling transactions and trades. The OCC began allowing this during Trump’s first term in 2020, but under his successor Joe Biden regulators required them to seek permission. Only KKR-backed Anchorage Digital managed to get its application approved and keep it during that period.

Now the industry expects more favorable treatment. The Biden-era requirement was rescinded in May, while the U.S. Senate this month confirmed Jonathan Gould, previously the top lawyer at crypto firm Bitfury, to head the OCC.

An even bigger prize for crypto firms would be getting a so-called master account with the Fed. Ripple unit Standard Custody is seeking one. Such accounts allow firms to move even large sums through the Fedwire payment system quickly, rather than paying other banks.

Yet the central bank has been conservative in approving such applications. It groups applicants based on whether they are insured by the Federal Deposit Insurance Corporation. Stablecoin issuers and crypto firms are in lower tiers. Jason Mikula of Fintech Business Weekly calculates the Fed has approved 86% of applications from FDIC-insured firms, but only 1 of 39 from lower-tier firms since 2022. It’s hard to imagine the crypto industry won’t put up another fight. Wyoming-based Custodia has launched an appeal after being denied an account.

Trump has criticized Fed Chair Jerome Powell, complaining that interest rates are too high. The central bank’s new top watchdog, Michelle Bowman, may be more open to easing some regulations. Even so, a flood of applications from crypto firms would test the Fed’s willingness to swim with the pro-cryptocurrency tide.

CONTEXT NEWS

The U.S. House of Representatives on July 17 passed a bill to create a regulatory framework for U.S.-dollar-pegged cryptocurrency tokens known as stablecoins, sending the bill to President Donald Trump, who signed it into law on July 18.

Crypto firm Ripple applied for a national bank charter, its CEO Brad Garlinghouse wrote in a social media post on July 2, following a similar move by stablecoin issuer Circle on June 30.

(Editing by Peter Thal Larsen; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on KIRAN/pranavkiran.t@thomsonreuters.com))