Banks in the US are under increasing pressure to sever ties with cryptocurrency firms, as unfavorable media scrutiny, public sentiment, and regulatory measures against the industry grow.
Not a single US regulatory body, like the Federal Reserve or the Securities and Exchange Commission (SEC), looks at the crypto industry favorably today, according to a banking exec at a crypto-friendly American bank.
A “media frenzy” is currently covering the numerous banks and their depositors, they said. “There’s obvious pressure coming from external sources. Public sentiment affects Washington and regulators.”
In an exclusive talk with Protos, the banking exec spoke on-background about the regulatory hurdles facing the industry and what it means for crypto’s future in America. Things look rather bleak.
At the beginning of January, the Federal Depositors Insurance Corporation (FDIC) issued a scathing statement on cryptocurrency, saying that issuing or holding crypto stored or transferred on a decentralized network “is highly likely to be inconsistent with safe and sound banking practices.” The agency has “significant safety and soundness concerns” with crypto companies, or business models that have a concentrated exposure to crypto.
This puts banks in a tight spot, the executive told Protos. “It should be a major fear that every US bank is moving away from cryptocurrency,” he said. Regulators like the Federal Reserve “have so many levers they can pull” that most banks would find pursuing crypto to be impossible.
Indeed, banks face steep regulatory guidelines and enforcement actions, ranging from a ratings downgrade to the less often utilized, but infinitely worse, voluntary or involuntary liquidation processes.
A ‘disservice’ to pressure crypto-friendly banks
The FDIC maintains that banks are “neither prohibited nor discouraged from providing banking services to customers of any specific class or type.” At the same time, banks are increasingly severing ties with crypto firms.
Binance is no longer able to work with Signature Bank for any clients moving less than $100,000 worth of cash at a time; Silvergate has resorted to borrowing billions from the Federal Home Loan Bank of San Francisco to meet customer withdrawals; and Moonstone Bank, involved with Alameda and FTX, decided to revert to its original name and abandon crypto expansion plans.
The banking exec feels that distancing US banks from crypto companies is a disservice. “The players that were in the US were trying to be compliant,” they said, adding that the move to separate banks from crypto was “a circular disservice” to the American public.
“I don’t know why America is doing this to themselves,” they told Protos.