Crypto companies scramble to find banking partners after the collapse of three major crypto lenders
Just last week, we wrote about Binance.US after a report that the U.S. arm of crypto exchange Binance was having problems finding a new banking partner following the collapse of Signature Bank that roiled the crypto market in March. Now, it appears the issue has spread to other crypto firms.
According to a new report by Reuters, Crypto firms have been left scrambling to secure new banking partners after the collapse of three crypto-friendly lenders in the U.S. last month, raising the danger that their business may become concentrated in smaller financial institutions.
It’s a scenario that worries US authorities, who have raised concerns about the safety and soundness of bank business models that are heavily focused on crypto customers following the failures of Silvergate Capital Corp, Signature Bank, and Silicon Valley Bank.
In the case of Binance.US, the Wall Street Journal Journal reported the crypto exchange was struggling to find a bank to take its customers’ cash after the failure of Signature Bank. Citing people familiar with the matter, the publication reported that Binance.US is now using at least one intermediary to store funds as a stopgap. The report also added that since the money is being held by a third party, it can slow down sending and moving of funds.
In recent months, regulators in the United States have also warned banks to be on the lookout for liquidity concerns associated with crypto-related deposits, which might see quick withdrawals if consumers try to redeem their crypto assets for real money.
Following a succession of high-profile disasters, including the bankruptcy of major exchange FTX in November last year, and a lack of regulation, mainstream banks have become increasingly leery of crypto customers.
“Crypto and Web3 start-ups are telling us they simply cannot get a business bank account,” said Marcus Foster, head of crypto policy at Coadec, a body representing UK start-ups. Foster said the issue has become “significantly worse” recently.
As a result, digital asset firms have had no alternative but to seek out smaller financial institutions, some of which are located in distant regions of global finance.