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U.S. Bank’s Investment In Crypto Worry You?
By Laxmikant Khanvilkar
Lenders across the globe are worried lots these day. The fear factor is: regulation or lack of regulation of virtual digital assets (VDA) or crypto assets. While the lender continue to feel the pinch from the sharp correction in prices of digital assets, the uncertainty over Bitcoin and other digital assets becoming mainstream is adding to their miseries.
Several lenders have announced their decision of moving away from the volatile markets of cryptocurrencies and are, in fact, closing down their unit that cater for crypto firm.
Metropolitan Bank Holding Corp, one of the earliest banks to delve into digital assets, has decided to close down the unit that funds crypto firm. Metropolitan took deposits from Voyager Digital, a crypto lending firm that sought bankruptcy protection last year.
Another key U.S. lender, Signature Bank has decided to shrink its deposits tied to cryptocurrencies by $8 billion to $10 billion. It will move away from the digital asset industry for the bank that until recently had been one of the most crypto-friendly companies on Wall Street.
“We are not just a crypto bank and we want that to come across loud and clear,” Signature Bank’s CEO Joe DePaolo said at an investor conference in New York hosted by Goldman Sachs Group on Tuesday.
Signature Bank is pulled up to courts for its involvement in the operations of the now-failed cryptocurrency exchange FTX. Interestingly, the group reported fourth-quarter net income of $301 million, beating analyst estimates.
Crypto bank Silvergate’s latest financials indicate the firm has been hit hard by the ongoing crypto crisis. The firm’s Q4 report indicated a $1 billion net loss attributable to shareholders, citing a “transformational shift” in the crypto industry which led to a “crisis of confidence across the ecosystem.”
However, Silvergate CEO Alan Lane insisted that the firm’s “mission has not changed,” adding that the company remains focused on providing value-added services for [its] core institutional customers.”
Meanwhile, LevelField Financial Inc. feels “cautiously optimistic” that its proposed acquisition of Burling Bank could be approved by regulators and closed in 2023, said Gene Grant II, chairman and CEO of LevelField.
LevelField – the Houston-based financial technology platform – is a cryptocurrency trading and custody platform mainly for high net worth individuals and smaller institutional investors, and with the bank acquisition, it aims to provide depository and lending services directly to crypto-savvy consumers, Grant said.
In mid-January 2023, the three main U.S. banking regulators—the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corp.—sent out a joint statement essentially warning banks not to delve too deeply into crypto.
While the guidance said banks weren’t discouraged from providing banking services to customers in any industry, the agencies “believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices.”
It is interesting to note that few have raised their bets on digital currencies while some are seeking escape route. The wait for regulatory clarity is extremely excruciating and industry participants are feeling the pain from the same.
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