Banks stop cooperating with crypto firms due to fears of reprisals from regulators. The latter threaten to separate digital assets from the traditional financial system. The Wall Street Journal.
Supervisors have raised concerns about such relationships since the collapse of FTX.
According to the sources of the publication, against the backdrop of the campaign SEC against the major players in the industry, the banking sector has thought about limiting business with clients that may be under the gun of the Commission.
Lending institutions have audited any impact of the crypto sector, no matter how small.
Several small banks that have penetrated the industry widely are reducing their presence in the market or breaking ties altogether, writes the WSJ. Those organizations that “kept their distance” began closing accounts and turning away clients with potential ties to crypto firms.
For example, New York-based Metropolitan Commercial Bank announced the closure of a digital asset-focused business, citing significant changes in the regulatory environment. Signature Bank has cut ties with Binance’s international business.
The publication recalled that crypto firms still rely heavily on banks to connect to the financial system with transactions in dollars and euros.
“If you do not have a bank account, it is very difficult to do business”, — said CEO Signature Scott Shea.
Since 2020, the Office of the Comptroller of the Currency at the US Treasury (OCC) has allowed banks to provide custody services for cryptocurrencies, hold collateral for stablecoins, and issue them.
After the collapse of FTX, the situation changed. In January 2023, three major regulators of the sector warned credit institutions about the concerns of their ties with crypto firms in connection with issues of “safety and reliability”, the publication recalled.
“Banks, if you are going to work with the crypto business, we will look closely at you. In the end, you’ll have to ask yourself if it’s worth making the situation worse.” Thomas Vartanyan, CEO of the Financial Technology and Cybersecurity Center, commented.
The publication explained that credit institutions began to come to the conclusion that customers from the industry “are not worth the headache” because of the regulators, and turn them off.
Signature is the most famous bank to cut ties with the industry. At the beginning of 2022, the organization received 27% of deposits in the amount of $109 billion from crypto firms.
At the end of 2022, the bank announced plans to reduce this figure to 15% and limit the amount of receipts from any individual crypto client.
The WSJ noted that some banks have not changed their strategy.
Silvergate has no other sources of income unlike Signature. The company lost most of its crypto deposits as a result bank-wound in the last quarter. The organization is cutting jobs and businesses in an attempt to cut costs. Silvergate said it remains committed to serving the industry.
Paxos previously denied rumors that it might withdraw its application for a full nationwide trust bank license from the OCC.
On February 10, it became known that NYDFS initiated an investigation against the company. The regulator later ordered Paxos to stop issuing BUSD. The SEC also announced its readiness to sue the latter.
Recall, the US Department of Justice Fraud Unit is investigating Silvergate’s transactions with the FTX cryptocurrency exchange and related hedge fund Alameda Research.
Senators Elizabeth Warren, John F. Kennedy and Roger Marshall demanded that Silvergate CEO Alan Lane provide detailed information about bank relations and the Sam Bankman-Freed trading platform.
In late 2022, a class-action lawsuit was filed against the credit institution for its alleged role in transferring FTX user deposits to Alameda Research accounts.
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