After Silvergate And Signature Closure, Banks Are Wary Of Crypto
After major US banking partners broke up this month, a lot of crypto companies are looking for a new place to call home. However, it’s hard to find new banking partners.
After the closing of some of the country’s most crypto-friendly banks earlier this month, US banks are hesitant to do business with crypto companies.
Several people in the crypto industry, bank executives, and investors say that banks are making it harder for companies to partner with them in a number of ways, such as by making the application process for these companies longer or by leaving the industry altogether.
Crypto’s Banking Issue
After Silvergate Bank, Signature Bank, and Silicon Valley Bank (SVB) all went out of business in the same week in mid-March, crypto companies are desperate to find new partners.
For example, Cross River Bank got requests from more than 100 new clients in the days after SVB and Signature closed. Even though not all of these clients were crypto companies, CryptoPotato has said in the past that crypto-focused Swiss banks have seen a similar increase in new business lately, especially from former Silvergate clients.
Cross River said no to almost all of those requests, which was bad for the industry. Eden Hoffman said that the company only looks at companies that already work with Cross River, are blue-chip customers, and are important parts of the fintech ecosystem.
Some of the world’s largest banks, like JP Morgan Chase and Bank of New York Mellon, do business in the industry. But Bitstamp CEO Bobby Zagotta says that the process of signing up can take up to 6 months and is very long. The crypto exchange itself used to use SIlvergate and Signature, but now it uses MVB Financial Corp. and Customers Bancorp and is looking for more regional partners.
Chokepoint 2.0
Financial regulators haven’t put a blanket ban on the crypto asset sector, but the Federal Reserve, FDIC, and OCC have warned banks about risks they should be aware of when working with crypto firms. One of them was the “unpredictability” of deposits coming in and going out, which can make a bank too dependent on the sector unstable during times of industry-wide market panic.
Some people think that the fast crackdown on crypto’s banking partners and the growing number of regulatory actions against major industry firms are all part of a larger government plot to get crypto out of the US. Tom Emmer, a congressman who supports crypto, has looked at the government’s forced closing of Signature Bank as a deliberate attack on crypto.
Nic Carter, a general partner at Castle Island Ventures, has made this idea well-known by calling it “Operation Chokepoint 2.0.”
“No banks want to put up their hand and say, ‘We are the guy serving the crypto industry,’ because they saw what happened,” he told. “No bank wants to be considered the next Silvergate or Signature.”
