A month of contrasts: reciprocal deposits win, Wise bank charter bid denied, CRA revamp, bank M&As.
July's biggest stories point to one underlying question: how much room should nonbanks and fintechs get in a system built around bank charters, deposit insurance, and payment rails? The OCC denied Wise's trust charter over AML shortfalls even as it kept approving charters for Circle, Sony, Upstart, and others. The Fed's proposed "skinny" payment account framework raises a similar question about nonbank access to payment infrastructure. Meanwhile, community banks picked up a real win on reciprocal deposits, weathered two bank failures in a week, kept up a brisk pace of M&A, and got a look at a revamped CRA proposal. Here's what happened, and what it might mean for your institution.
1. OCC Denial of Wise Trust Charter Highlights AML Scrutiny Amid Charter Boom
The OCC denied London-based fintech Wise's application for a national trust bank charter, citing significant supervisory and compliance concerns tied to anti-money laundering deficiencies. The agency pointed to a 2025 multi-state consent order against Wise's U.S. arm, which required the company to pay $4.2 million and strengthen its Bank Secrecy Act and AML compliance programs. And the OCC said the proposed bank leadership lacked sufficient experience in AML/CFT and fiduciary matters. Wise said it plans to refile under a Genius Act framework, but the denial marks the OCC's first rejection of a charter application amid the influx of charter applications under the current administration.
The rejection stands out because it's happening alongside a wave of approvals. Upstart received conditional approval for a full national bank charter just two days after Wise's denial, joining fintechs Nubank and Mercury in that status. On the trust charter side, stablecoin issuer Circle secured full OCC approval for a national trust bank to offer digital asset custody services, while Japanese conglomerate Sony received conditional approval for its own trust bank charter. Rent payment platform Flex applied for an industrial loan company charter in Utah, following similar moves by Klarna, Stellantis, Ford, and GM, and Increase founder Darragh Buckley acquired a small Washington state bank outright to add charter capabilities to his fintech's banking infrastructure business.
Why This Matters to Community Banks and Credit Unions
The Wise denial suggests that even amid a friendlier charter environment, regulators are still holding fintech applicants to established compliance standards, particularly around AML and fiduciary oversight. At the same time, the approvals for Circle, Sony, Upstart and others point to continued momentum behind fintechs and non-bank firms securing their own charters rather than relying on sponsor bank relationships. Trade groups including the ICBA have raised concerns about trust charters for stablecoin issuers specifically, noting they aren't subject to the Community Reinvestment Act or deposit insurance requirements the way traditional banks are. How this mix of approvals and denials reshapes the landscape for community banks that currently serve as partner or sponsor institutions may become clearer as more applications work through the pipeline.
Acceleron’s Co-founder and Chief AML Officer Sarah Beth Felix breaks down what went wrong with the Wise bank charter application in her Dirty Money newsletter, and explains how Acceleron Bank was built differently from day one. Read her take →
2. Community Banks Raise Concerns Over Fed's "Skinny" Payment Account Proposal
More than two dozen community banks submitted comment letters opposing the Federal Reserve's proposed limited payment account framework and the so-called "skinny" accounts, arguing it could give nonbank payment firms an edge in accessing the central bank's payment rails without the compliance obligations banks carry. Banks including INTRUST Bank, First Option Bank and Metairie Bank asked the Fed to explicitly rule out the limited accounts as a stepping stone toward full master account access.
Under the proposal, approved nonbank firms would gain access to Fedwire Funds Service, the National Settlement Service, FedNow and Fedwire Securities, though not the ACH network. Community bank commenters raised similar concerns across the board: that the framework could create an uneven playing field, introduce ambiguity around Bank Secrecy Act and AML compliance expectations, and lack a clear process for revoking access if risk issues surface. Fintech firms pushed in the opposite direction, requesting higher balance limits and ACH access. The Fed expects to finalize the framework before the end of 2026.
Why This Matters to Community Banks and Credit Unions
Community bank commenters framed the proposal as a potential threat to their deposit base, with one executive noting it could shift deposits and payment activity away from banks that reinvest in local economies. The tug-of-war between banks and fintechs illustrates the difficulty regulators face in trying to balance broader payment system access with consistent oversight. Whether the final framework leans toward the restrictions banks are asking for or the flexibility fintechs want remains to be seen as the Fed works toward a year-end deadline.
3. Fourth Bank Failure of 2026 Hits Kansas, Second in a Week
Small Business Bank in Kansas failed on July 17, with The Farmers State Bank of Oakley agreeing to assume all deposits and purchase certain assets in an FDIC-arranged deal. The $73 million-asset bank had drawn three enforcement actions from the Federal Reserve since 2023, including a June "prompt corrective action" directive labeling it "significantly undercapitalized" and giving it 30 days to raise capital. Examiners had flagged ongoing deficiencies in risk management and anti-money laundering compliance. The failure is expected to cost the Deposit Insurance Fund about $5.7 million.
It's the fourth bank failure of 2026 and the second in just a week, following the OCC's closure of Kentland Federal Savings and Loan Association in Indiana on July 10. That $3.73 million-asset thrift, the nation's smallest standalone bank and in continuous operation for more than a century under the same family, was deemed critically undercapitalized after "substantial dissipation of assets and earnings due to unsafe and unsound practices." Nearby Kentland Bank, an unrelated institution despite the similar name, assumed its deposits at an estimated cost of $1.2 million to the DIF.
Why This Matters to Community Banks and Credit Unions
Two failures in quick succession, even at this small scale, tend to draw attention to capital adequacy and risk management practices across the community banking sector. Both institutions had been under supervisory pressure for years before their eventual closures, suggesting the failures were the culmination of long-flagged issues rather than sudden shocks. Whether this pace of failures continues or proves to be a short-term cluster may become clearer as the year progresses.
4. Community Banks Secure Reciprocal Deposit Relief in Housing Legislation
Community banks now have more room to hold large corporate and municipal deposits without running into brokered deposit restrictions. The 21st Century ROAD to Housing Act took effect on July 10, and raises the threshold under which reciprocal deposits — large deposits a bank swaps with other banks in a network so each portion stays within FDIC insurance limits — are treated as core rather than brokered, up to 50% at the smallest institutions. This gives banks more flexibility to accept deposits above the $250,000 insurance limit from businesses, municipalities, and high-net-worth individuals.
Beyond reciprocal deposits, the bill covers several other priorities community banking groups have pushed for. Custodial deposits get similar treatment, exempted from the brokered deposit label. Banks with up to $6 billion in assets qualify for an 18-month exam cycle and other exam relief, easing some of the compliance burden for mid-sized institutions.
Why This Matters to Community Banks and Credit Unions
The reciprocal deposit change gives smaller institutions a practical tool for competing with larger banks for the kind of large-balance deposits that often flow toward "too big to fail" institutions during periods of stress. Bankers who testified in support of the bill described previously having to turn away large deposits to stay under brokered deposit thresholds, a constraint this provision loosens. The broader package, including the de novo pilot program and extended exam cycles, may take shape gradually as regulators work out implementation details, and how quickly banks move to take advantage of the added flexibility remains to be seen.
5. Community Bank Consolidation Continues With Several Deals Announced in July
Community bank M&A activity stayed brisk this past month. Colony Bankcorp agreed to buy First Reliance Bancshares for $163 million, First Financial Bancorp agreed to buy Finward Bancorp for $208 million, and Northrim BanCorp agreed to buy PBCO Financial for $167.3 million.
The month's most distinctive deal came from South Carolina, where Optus Financial and M&F Bancorp announced a merger that would create the nation's largest Black-owned bank, a combined $1.3 billion institution that would retain its MDI and CDFI status. Elsewhere, Alma Bank agreed to acquire American Community Bank across New York and New Jersey, and First Bancorp agreed to buy First Carolina Bancshares for $166 million.
Adding to the momentum, House Financial Services Committee Chair French Hill and 14 other Republican lawmakers urged Fed Vice Chair Michelle Bowman to speed up processing of long-pending M&A applications.
Why This Matters to Community Banks and Credit Unions
The pace and variety of these deals, spanning different regions, asset sizes and strategic rationales, suggests consolidation pressure remains a persistent feature of the community banking landscape rather than a passing trend. The Optus-M&F combination stands out for its focus on preserving MDI and CDFI status through scale rather than losing it to an outside acquirer, a model other minority-owned institutions facing similar pressures may watch closely. With lawmakers now pushing the Fed to further streamline its M&A review process, banks considering their own consolidation or expansion strategies may find regulatory approval timelines continuing to shorten in the months ahead.
6. OCC and FDIC Propose New CRA Rewrite, Raising Asset Thresholds and Narrowing Grant Credit
Community banks near the small bank exemption line could see meaningful changes to their CRA compliance obligations under a proposal the OCC and FDIC issued, notably without the Federal Reserve joining in. The rule would raise the small bank asset threshold from $412 million to $1 billion, and the intermediate bank threshold from $1.65 billion to $10 billion, meaning far fewer banks would need to track and report CRA-related data. The proposal would also narrow how examiners weigh retail banking services, focusing evaluations on lending activity rather than deposit services.
The proposal also tightens how community development grants count toward CRA credit. Banks with more than $10 billion in assets would need to document that grant recipients keep overhead costs at 15% or below, a change regulators say is meant to ensure development dollars reach communities directly rather than funding administrative costs at advocacy organizations the agencies characterized as "activist." Comments are due 60 days after the proposal's Federal Register publication.
Why This Matters to Community Banks and Credit Unions
For banks currently just above the $412 million threshold, the proposal would mean a meaningful reduction in CRA reporting burden, one of the more direct compliance relief measures community banking groups have seen this year. At the same time, community advocacy organizations including the National Community Reinvestment Coalition have argued the changes would weaken banks' obligations in working-class and rural communities at a moment when affordable housing needs remain high. With the Fed notably absent from the joint proposal and a 60-day comment period ahead, how this rulemaking effort fares compared to its predecessors, several of which were rescinded or challenged in court, remains to be seen.
Last month, we covered the rising costs of AI, lower deposit insurance assessments, and digital assets. Missed it? Catch up here.
Acceleron is a modern correspondent banking platform that empowers community banks and credit unions to automate international wire transfers, capture non-interest income, and compete more effectively with big banks. With a foreign exchange (FX) marketplace and currency conversion engine, Acceleron’s API-first infrastructure helps institutions turn cross-border payment flows into efficient, revenue-generating opportunities. Serving over 200 financial institutions and facilitating more than $1 billion in international payments annually, our correspondent banking services and international payment automation solutions are pre-integrated seamlessly with Fiserv Payments Exchange, Aptys, and other leading payments platforms.
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Daisy Lin, Head of Marketing, Acceleron: 8/5/26, 11:11 AM
Daisy Lin, Head of Marketing, Acceleron