Which "crypto-friendly" banks are there after the Silvergate crash?

Original Title: 《Crypto Startups Scramble to Find Banks After Silvergate Meltdown》

Authors: Aidan Ryan, Akash Pasricha and Michael

Original Translation: Leo, BlockBeats

With the collapse of Silvergate, many crypto companies are looking for a way out, and venture capitalists are working hard to recommend crypto-friendly banks like Silicon Valley Bank to pair crypto companies with new banks. However, as traditional finance grows increasingly concerned about crypto, the number of banks available for selection is dwindling. The Information published an article on "Crypto-Friendly Banks After Silvergate," which BlockBeats has translated as follows:

Not Wanting to Be Defined as Crypto Banks

Crypto companies need banks to operate, but the reality is that finding a crypto-friendly bank is becoming increasingly difficult.

In recent years, the crypto industry has been booming. Many small banks have embraced the rapidly growing crypto sector, overlooking the risks involved. With the collapse of FTX, the instability of Silvergate Bank, and Signature Bank reducing its crypto clients, both banks and crypto startups find themselves in a predicament.

For some crypto companies, their clients require bank accounts for remittances, and they must transfer assets to banks that accept crypto. Venture capitalists and crypto executives told The Information that the most likely banks for this purpose are Silicon Valley Bank, Customers Bank, and Mercury. However, this is primarily for large crypto companies; for smaller crypto startups, the lack of credit backing makes it especially challenging to find a crypto-friendly bank.

Sources told The Information that the exit of crypto-friendly banks may have little impact on large trading platforms and other established crypto companies, as these companies are associated with multiple banks, including some mainstream banks that may allow them to increase deposits.

For example, Coinbase has a banking relationship with JPMorgan Chase. (Previous reports indicated that JPMorgan had severed ties with Gemini.) The situation is quite different for crypto startups. A crypto venture capitalist told The Information that in recent weeks, where to turn has been a hot topic among venture capital firms, as their companies have been introducing startups to other banking partners, including Silicon Valley Bank and Mercury.

However, some crypto startups have faced greater setbacks and may have to seek more "niche" partners. Matthew Homer, a venture capitalist, blockchain startup consultant, and former regulator at the New York State Department of Financial Services, stated, "Smaller crypto startups are finding it increasingly difficult to find new banking partners, which is frustrating; they will be pushed to the second or third tier."

Part of Silvergate's appeal to the crypto industry was its payment system, the Silvergate Exchange Network, which allowed crypto companies and institutional investors to transfer funds quickly 24/7. Last week, the bank shut down its system.

An executive from a crypto trading company stated that they have been receiving calls from clients such as hedge funds and crypto companies, some of whom had accounts with Silvergate, seeking advice on which crypto-friendly bank to turn to now and whether Silvergate could help facilitate connections.

Although Signature Bank has become an alternative to Silvergate due to its similar payment network, Signet, it has shown little interest in expanding its crypto business. In December of last year, the company stated that it hoped to reduce crypto-related deposits to below 20% of total deposits, with a final goal of cutting it to below 15%. The bank's crypto-related deposits decreased by $7.4 billion in Q2 of last year—about $18 billion, accounting for one-fifth of its total deposits.

Ian Sexsmith, chief portfolio manager and senior research analyst at Parnassus Investments, stated that investor pressure has driven changes at Signature, as Parnassus Investments holds about $150 million in shares of the bank. Another motivation is the concerns of the bank's other clients, such as asset management firms, law firms, and healthcare providers, who are increasingly worried about the bank's close ties to the crypto industry.

"They don't want to do this, they don't want to be defined as a crypto bank."

Other Options for Crypto Companies

Customers Bank

While companies like crypto trading platforms may not necessarily need to use U.S. banks, having the backing of the Federal Deposit Insurance Corporation (FDIC) is quite attractive for their clients. Customers Bank is a good option for crypto companies; the bank signed contracts with many large crypto clients in early 2021 and offers a payment system similar to Silvergate's network. Informed sources revealed that the company does not plan to exit the crypto industry.

Additionally, Customers Bank hired several former Silvergate employees in January, including former Silvergate business development head Robb Layfield and former Silvergate global payments vice president Daniel Devine.

Silicon Valley Bank

Silicon Valley Bank noted in its 2022 annual report that it lends to and accepts deposits from crypto companies and also invests in these companies, but it aims to keep its "risk exposure to crypto clients minimal." A spokesperson for the bank stated, "The bank does not plan to change its acceptance of crypto for the time being."

Cross River Bank

Cross River Bank has established a foothold in the crypto sector in recent years, with Coinbase being one of its clients. A spokesperson for Cross River previously stated, "Cryptocurrency transaction processing and partnerships remain part of our product diversification, and we allocate our resources based on compliance, market conditions, and client needs."

Mercury

Of course, crypto companies can also turn to fintech companies, which are not licensed banks but can provide bank-like services. For example, Mercury offers checking and savings accounts, wire transfers, and other services through partnerships with Choice Financial Group and Evolve Bank & Trust. A spokesperson for Mercury told The Information that the company supports all startups, including those in the crypto industry, but does not partner with trading platforms or BTC ATM providers.

Collaboration is Possible, but Limited

Silvergate attracted a large number of deposits by catering to the crypto industry, which in turn provided them with a cheap source of loan financing. However, last week, Silvergate indicated that it might be "capital deficient," raising questions about its ability to continue operating.

U.S. regulators have long been a "roadblock" to crypto. Previously, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC issued a joint statement regarding the liquidity risks posed by the vulnerabilities in the crypto asset market, emphasizing the liquidity risks associated with certain funding sources related to entities in the crypto asset sector. Regulators pointed out that the interconnectedness of the crypto industry exacerbates the risks faced by banks with excessive exposure. Just days later, Metropolitan Commercial Bank announced that it would "completely exit" the crypto industry.

Even those banks that have long accepted clients that larger banks are unwilling to engage with are becoming cautious. Ryan James, CEO of Surety Bank, which is based in Florida, has been serving high-risk clients in sectors like crypto, cannabis, and payday loans for years.

James stated, "It's ironic that your legitimate business can't get a bank account." Surety Bank is open to accepting new crypto clients, but James noted that this is "very selective," and he does not want crypto to make up too large a portion of its overall business.