Banks face a tough choice over crypto

North Carolina's lender isn't the only one who has a dislike for digital assets. New York Community Bank refused to touch the digital banking division of Signature, a lender that went under shortly after SVB. Barney Frank, a former US congressman who served on the board of Signature, told me that banks responded to a growing regulatory hostility towards cryptocurrencies following the collapse of the digital exchange FTX in November last year. He said, 'I can't think of another reason why the New York regulator would shut us down.' Bitcoin and other digital assets are gaining popularity. On Twitter and online chats, there are many rumors about what people believe is a concerted attempt by the US government in order to ban cryptocurrency completely. Regulators claim that they only want to make sure that banks remain stable and that cryptocurrencies don't facilitate money laundering or other crimes. New York Department of Financial Services said that the closure of Signature was not related to crypto. Michael Barr, vice-chair of the US Federal Reserve, stated in a recent address about crypto that he had not forgotten the transformative potential these technologies can have on our financial systems. The crypto bros do have a valid point, however: since FTX collapsed, official attitudes have become more rigid. They had no choice. FTX was once valued at 40bn dollars and considered to be the responsible player in the crypto industry. It turned out that it lacked basic financial controls, causing its executives to allegedly plunder millions of customer assets. Silvergate was undermined by the scandal and the falling cryptocurrency prices: Depositors withdrew $8bn during the fourth quarter. This forced Silvergate to sell securities for a large loss. US watchdogs have now tightened up their enforcement. As the enforcement cases also come thick and fast. The US-listed crypto exchange Coinbase was warned it could be charged with securities violation. The Commodity Futures Trading Commission filed a lawsuit against Binance on Monday alleging that the exchange allowed Americans to illegally trade crypto derivatives. The watchdog claims that Binance facilitates illegal activity. "Like, come on." Its chief compliance officer was quoted as saying that some customers were here to commit crimes. Jeremy Allaire is the chief executive officer of stablecoin-issuer Circle. The company had deposited $3bn at SVB in reserve. He has warned that this crackdown will drive crypto enthusiasts to 'platforms without oversight, completely opaque banks and risk exposures. It's overdone. Some banks still serve digital asset companies with limited services. No one has publicly announced their intention to replace Silvergate and Signature as the two main banks focused on crypto. It is time for the industry make some tough decisions about digital assets. First Citizens, for example, is signaling which side it wants to be on.

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