No crypto bank gate has really opened in this US storm

The biggest US banks have not stepped forward to welcome homeless crypto businesses seeking banking services after fleeing the wreckage of Silvergate Bank, Signature Bank and Silicon Valley Bank.

CoinDesk asked the top 20 US banks by assets if they were taking on crypto clients, particularly those businesses that recently lost their banking homes in the recent carnage. Most of them remained silent on the question. Some — including JPMorgan Chase & Co., Citigroup Inc., Bank of New York Mellon Corp. and Morgan Stanley – declined to comment.

Others were open in saying that they are not comfortable taking on crypto clients.

KeyBank, a regional lender based in Ohio, is between Silicon Valley and Signature in scale, so around the size of the institutions that crypto clients have been accustomed to using. But a spokeswoman there said the firm focuses on those who meet its “moderate risk profile.”

“Crypto-focused firms do not fall into this category at this time,” she said.

And Citizens Financial Group, Inc., which is among the larger regional banks, said it does not have “direct credit exposure to crypto/digital asset businesses, and that’s not something we want to get into right now,” according to a spokesman.

The panic over the collapse of tech-oriented banks — which marked two of the biggest state-owned bank takeovers in history with Signature and Silicon Valley, plus a more recent infusion of cash into First Republic Bank from its banking peers — flooded the industry with businesses looking for places to handle their banking operations. The banks CoinDesk surveyed represent about $13 trillion in assets — or roughly 56% of the U.S. banking sector. Not even BNY Mellon — known for handling custody of crypto companies’ assets, like much of the liquid cash in Circle Internet Financial’s reserves — chose to openly address the situation, despite expanding its Circle business amid the turmoil.

The largest U.S. bank, JPMorgan, has not slammed the door on crypto companies, but it is being particularly wary of any new clients, according to a person familiar with the situation. It won’t take on any full-on crypto businesses, but it remains willing to extend basic banking services to a handful of companies that touch the space, the person said, such as firms investing in some crypto projects.

JPMorgan has a complicated history with large digital asset firms. The Wall Street banking giant has severed business ties with Gemini, as CoinDesk first reported earlier this month, but it still maintains its partnership with crypto exchange Coinbase (COIN). And while CEO Jamie Dimon is famously critical of digital assets, his bank has also experimented with high-level uses of blockchain technology and its own internal token.

Citigroup Inc. is taking a similar approach to its rival at the moment. The doors are still open at Citi to new clients that can pass its due-diligence standards, but it doesn’t come close to hardcore, crypto companies such as token issuers, a person familiar with the approach said.

Industry insiders have traded hints that other banks — such as some foreign institutions doing business in the U.S. — they believe may still be open to crypto companies. A person at a major crypto company said that more than two dozen US banks still do business with the industry, although it is not openly advertised.

When Circle lost some of its banking partnerships, for example, it turned to a small New Jersey institution, Cross River Bank, which was known for doing business with tech investment companies.

“As long as a crypto company can demonstrate its ability to be a good banking customer, it should be bankable,” said Sheila Warren, CEO of the Crypto Council for Innovation.

As banks struggle under a rush of customer applications, they are also dealing with industry volatility, with the KBW index’s measure of banking stocks down about 22% from the point when Silvergate began faltering two weeks ago. So crypto companies have appeared at the doors of financial institutions that are themselves shaken by what has happened.

The banks are also unsure of exactly which customers they can lend a hand to without their regulators lashing out.

Whether or not the volatility or business practices of the crypto sector contributed to the failures of the industry’s favorite banks, the surviving institutions are under directives to be wary of digital assets. Since the collapse of FTX, leaders of the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency expressed relief that they had resisted allowing cryptocurrencies into the banking system. In recent months, they have cemented this position by warning lenders they oversee that those focusing on crypto clients are unlikely to convince their public watchdogs that they are running a safe bank.

Most of the banks are taking these statements to heart, and some insiders — like former House Financial Services Committee chairman Barney Frank, who is a board member of Signature — have more pointedly accused regulators of gunning for crypto.

Asked if they could provide more clarity on what kind of crypto business exposure might be acceptable at the banks they oversee, spokespeople for the Federal Reserve and the Federal Deposit Insurance Corp. declined. to go further than the statements they had published recently. months.

Officials from both agencies have been called to a March 29 hearing before Frank’s old House committee to explain what happened to Signature and Silicon Valley.

For the customers of these banks, federal authorities blunted some of this month’s panic when the FDIC stepped in to take charge of them and opened up its deposit insurance to cover all normally uninsured customers—a group into which the bulk of crypto customers fit. New York Community Bancorp stepped in to take over Signature’s non-crypto deposits, leaving open the question of the $4 billion in deposits still in limbo from the digital asset business.

And federal officials have continued to try to calm the financial sector. Wally Adeyemo, deputy secretary of the U.S. Treasury Department, told CNBC last week that “deposit flows have stabilized in regional and small banks” and in some cases have “reversed modestly.” He credited it to the government’s aggressive move to protect uninsured depositors.

But the banks also see how burdened their critics are, such as Sen. Elizabeth Warren (D-Mass.), who slammed former Signature CEO Joseph J. DePaolo in a letter that cited “gross mismanagement that resulted in the bank’s failure.” She claimed the bank “embraced crypto customers with inadequate safeguards.”

The senator ended her letter with the question, “Why did you fail to heed regulators’ warnings about the risks associated with the crypto industry?”