Banks wary of serving crypto customers after blasts and regulatory scrutiny

US banks, already hesitant to work with crypto clients, are now even more reluctant to provide services to the industry after a series of regional lender meltdowns and amid increased scrutiny by regulators.

The closing of Silvergate Capital Corp. and the seizure of Signature Bank have left crypto firms struggling to find new banks for deposit and payment services. While there is no blanket ban on serving crypto customers, financial firms are imposing lengthy application procedures, refusing small businesses and some retail platforms, and in some cases shutting down altogether the door to crypto businesses, according to industry participants, investors and bank executives.

Cross River Bank, for example, received inquiries from more than 100 new customers, not all of whom were crypto companies seeking safe haven for their deposits in the days following the Silicon Meltdown. Valley Bank and Signature of SVB Financial Group, according to a person with direct knowledge of the bank’s business. The closed company denied nearly all of those requests, the person said.

The bank “only considers companies with existing relationships with Cross River that are blue-chip customers and an integral part of the fintech ecosystem,” said Eden Hoffman, 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 has expanded a partnership with Cross River, announced after the failure of Silicon Valley Bank.

Earlier this month, lenders who made an offer to buy Signature Bank from Federal Deposit Insurance Corp. specifically asked not to tackle the digital asset sector, 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 looking to sell Signet, Signature’s real-time payment network for crypto businesses.

“No bank wants to raise their hand and say, ‘We’re the guy serving the crypto industry,’ because they saw what happened,” said Nic Carter, general partner at the firm. crypto venture capital Castle Island Ventures. “No bank wants to be seen as the next Silvergate or Signature.”

Among banks’ concerns are concentration of deposits and liquidity risks if banks take on too many businesses in a particular industry, according to John Popeo, a former FDIC attorney and now a partner at the Gallatin Group, which advises banks and d other companies on regulatory issues. Indeed, La Jolla, Calif.-based Silvergate, which earlier this month decided to halt operations and liquidate its bank, had bet nearly all of its business on serving the industry. of cryptography. An FDIC spokesperson said the agency does not impose specific limits on banks. on the categories of deposits or the deposits of any individual institution. Nonetheless, in a January joint warning from the FDIC, Federal Reserve, and Office of the Comptroller of the Currency, regulators took particular issue with the business models of banks that had concentrated their exposure to the crypto sector.

Some large banks, such as JPMorgan Chase & Co. and Bank of New York Mellon Corp., seem willing to do business selectively with crypto firms, although “the integration process with major global banks is quite long” for up to six months, said Bobby Zagotta, managing director of Bitstamp USA Inc. The crypto exchange had counted Silvergate and Signature among its banks, and now uses MVB Financial Corp. and Customers Bancorp. in the United States, while exploring the opening of accounts in other regional banks.