The closure of crypto-friendly Silvergate Capital Corp. and seizure of Signature Bank has left crypto firms struggling to find new banks for depository and payment services. While there’s no blanket ban on serving crypto clients, financial firms are imposing lengthy application procedures, turning away smaller companies and some retail platforms, and in some cases shutting the door on crypto businesses altogether, according to industry participants, investors and bank executives.
Cross River Bank, for example, received requests from more than 100 new clients not all of whom were crypto companies seeking a safe harbor for their deposits within days of SVB Financial Group’s Silicon Valley Bank and Signature collapsing, according to a person with direct knowledge of the bank’s business. The closely held company turned down almost all those requests, the person said.
The bank is “only considering companies with existing relationships with Cross River that are blue-chip customers and integral to the fintech ecosystem,” said Eden Hoffman, a spokesperson for the Fort Lee, New Jersey-based lender. Among the few crypto companies that have won over the bank is stablecoin issuer Circle Internet Financial., which expanded a partnership with Cross River, announced after Silicon Valley Bank failed.
Earlier this month, lenders that were bidding to buy failed Signature Bank from the Federal Deposit Insurance Corp. specifically asked not to take on the digital-assets business, according to a person familiar with the process. Signature’s crypto business was not part of the eventual takeover by New York Community Bancorp, and the FDIC is still seeking to sell Signet, Signature’s real-time payments network for crypto firms.
“No banks want to put up their hand and say, ‘We are the guy serving the crypto industry’, because they saw what happened,” said Nic Carter, general partner at crypto venture-capital firm Castle Island Ventures. “No bank wants to be considered the next Silvergate or Signature.”
Among the banks’ concerns are deposit concentration and liquidity risks if banks take on too many companies in a particular industry, according to John Popeo, formerly an FDIC lawyer and now a partner at Gallatin Group, which advises banks and other firms on regulatory issues. Indeed, La Jolla, California-based Silvergate, which decided earlier this month to wind down operations and liquidate its bank, had bet almost its entire business on serving the crypto industry.An FDIC spokesperson said the agency doesn’t impose specific limits for banks on deposit categories or deposits from any individual institution. Nevertheless, in a January joint warning by the FDIC, Federal Reserve and Office of the Comptroller of the Currency, the regulators took particular issue with bank business models that had concentrated exposure to the crypto sector.
Some big banks, such as JPMorgan Chase & Co. and Bank of New York Mellon Corp., seem willing to selectively do business with crypto firms, though “the on-boarding process with large global banks is quite long” up to six months, said Bobby Zagotta, chief executive officer of Bitstamp USA Inc. The crypto exchange had counted Silvergate and Signature among its banks, and is now using MVB Financial Corp. and Customers Bancorp . in the US, while exploring opening accounts at other regional banks.
