Small Banks See Fortunes Rise and Fall With Crypto

Small banks were happy to land cryptocurrency-related businesses as clients when the industry was booming. Now that crypto prices have plunged, those banks are on something of a roller coaster.

That’s according to a Monday (Aug. 15) report by The Wall Street Journal (WSJ), which explored the phenomenon from the perspective of three small banks: Silvergate Capital, Signature Bank, and Customers Bancorp.

Silvergate, for example, saw its deposits swing by $5 billion in the second quarter of the year, ending more or less flat at $13.5 billion. The bank reported its second quarterly drop in deposits in the past 10 years, while one of its larger crypto customers declared bankruptcy, the report stated.

The banks’ stocks have taken a wild ride as well, with Silvergate and Signature shares doubling during the market boom in 2021, and Customers’ stock increasing three-fold. Now, Silvergate has fallen almost 30% this year, while Signature and Customers have dropped close to 40%, according to the report.

Among Signature’s customers was the crypto lender Celsius Network, which filed for bankruptcy last month. Court records show that Celsius said it had $130 million in cash on hand and nearly all its bank accounts were with Signature, the report stated.

Chairman Scott Shay told WSJ that Signature has experience working with clients in bankruptcy and that Celsius accounts for a small portion of its deposits. A $2.4 billion drop in digital asset deposits in the second quarter dragged down total deposits.

“We’re banking a lot of companies, and it’s not our job to pick the winners and losers,” Shay said, per the report.

See also: Signature Bank Announces Public Stock Offering Pricing

Celsius filed for Chapter 11 bankruptcy in July after freezing customer accounts. Last week, blockchain payments firm Ripple announced it is interested in buying the company’s assets, but stopped short of saying whether it wanted to acquire the firm.

Read more: Ripple Could Buy Assets From Bankrupt Crypto Lender Celsius

Ripple has grown in spite of the rocky crypto market and “is actively looking for M&A opportunities to strategically scale the company,” a company spokesperson said.

Customers Bank, based in Pennsylvania, began going after deposits from the crypto industry under a year ago, WSJ reported. Its payment system has gleaned more than $2 billion in deposits, about 11% of its total deposits.