Banks Welcome Crypto Firms After Signature/Silvergate Downfall

Cryptocurrency firms left bankless following the downfall of two industry lenders have found new homes.

That’s according to a Monday (March 27) report by the Wall Street Journal, which says some banks have welcomed business from crypto companies, even as the industry faces increased pressure from U.S. regulators.

This month has seen two banks once known for courting the crypto sector go out of business. Silvergate Bank voluntarily liquidated itself on March 8, soon after saying in a regulatory filing that it had concerns about its ability to remain in business.

Four days later, Signature Bank was taken over by the Federal Deposit Insurance Corp. following a run on deposits. 

As PYMNTS has written, the back-to-back implosions of both banks were a one-two punch for the crypto world.

Signature operated a proprietary payment network called Signet that lets commercial crypto clients make real-time payments (RTP) 24 hours a day, seven days a week. 

When Silvergate closed, Signet was the only option many firms had to quickly send payments to exchanges, vendors or even to handle administrative needs such as making payroll.

But with those banks gone, other lenders have begun to welcome crypto firms, industry executives tell the WSJ.

“There are dozens of other banks, both onshore and offshore, that are taking advantage of this opportunity,” said Rich Rosenblum, president and co-founder of crypto trading platform GSR.

Banks willing to service crypto firms have been flooded with applications during the past two weeks, crypto executives and bankers said, per the report. 

Following Signature’s failure, one crypto banker told the WSJ. he turned on his phone’s “do not disturb” mode so he could get some sleep, but so many quick-succession texts that his phone overrode the setting.

The report also notes that other banks are wary about getting involved with crypto companies as the industry continues to face pressure from regulators.

As if to illustrate this point, Monday saw reports of the U.S. government taking action against two different crypto firms.

The Commodity Futures Trading Commission (CFTC) charged crypto trading platform Binance and its CEO Changpeng Zhao with violating a number of regulations.

“For years, Binance knew they were violating CFTC rules, working actively to keep the money flowing and avoid compliance,” CFTC Chairman Rostin Behnam said in a news release. “This should be a warning to anyone in the digital asset world that the CFTC will not tolerate willful avoidance of U.S. law.”

Meanwhile, regulators have published an order detailing their rationale for quashing crypto-focused Custodia Bank’s bid to become a member of the Federal Reserve System.

The ruling effectively crushes the “lingering industry hopes that Custodia might serve as a qualified and regulated on-ramp to the traditional financial sector,” PYMNTS wrote.

The order says Custodia “has been unable to demonstrate that it could conduct an undiversified business focused on crypto-asset-related activities in a safe and sound manner and in compliance with BSA and Office of Foreign Assets Control (“OFAC”) requirements.”