US banks shun crypto firms as regulatory pressure mounts

US banks large and small are distancing themselves from crypto at a time when the war-torn industry needs all the allies it can get.

Last week’s trifecta collapse of the two biggest crypto-friendly banks, Silvergate and Signature, as well as tech-friendly Silicon Valley Bank, left many crypto companies and tech startups treading water as they scramble to find new banking partners amid the turmoil that led to major US bank losses close to 200 billion dollars in one week.

Banks that were previously open to working with crypto clients are now turning away, including some of the nation’s largest such as JPMorgan, Bank of America and Citigroup, according to people with direct knowledge of the matter.

Even mid-sized banks, which have generally been more crypto-friendly as they looked to capitalize on a niche banking business, are moving sideways in the industry as well. FOX Business has learned that Evolve Bank & Trust and Metropolitan Bank are no longer seeking crypto firms as clients.

SILICON VALLEY BANK COMPLETE: STARTUP NESS SAYS COMPANIES CAN LEARN WORTHY LESSONS

“At the beginning of the year, we began the process of exiting our partners who offer crypto services as a primary part of their business,” a spokesperson for Evolve Bank & Trust told FOX Business. “We intend to continue the off-boarding process and will not be adding crypto-focused partners in the future.”

The unprecedented implosion of three banks in one week, the collapse of the FTX crypto exchange and other industry fluctuations are spurring calls for increased regulation of the $1 trillion crypto market. The threat of serious oversight of the nascent business appears to be the driving force behind the withdrawal, people with knowledge of the matter say.

US financial regulators led by the Securities and Exchange Commission have made it increasingly clear that any crypto company not registered with the commission (most of the industry) will face enforcement. (REUTERS/Andrew Kelly/File Photo/Reuters)

For example, US financial regulators led by the Securities and Exchange Commission have made it increasingly clear that any crypto company not registered with the commission (most of the industry) will face enforcement.

Following the collapse of FTX in November and the criminal indictment of founder Sam Bankman-Fried, the SEC brought a series of actions against several crypto companies. The Treasury, Federal Reserve, and FDIC have issued warnings to banks about the risks of associating with the industry.

The FDIC AND YOUR BANK DEPOSITS: WHAT TO KNOW

It has certainly been enough to deter banks that readily cooperated with crypto firms just months ago from backing out. Evolve, which partners with digital banking platform Juno, says it plans to wind down all of its existing crypto partnerships.

Juno did not immediately respond to a request for comment.

Metropolitan Bank, which once counted Exchange Crypto.com among its clients, announced in January that it would exit the crypto space due to the increased regulatory scrutiny of banks serving the industry. Metropolitan and Evolve’s crypto partnership accounted for less than 2% of their respective revenues.

Wall Street giants like JPMorgan, Goldman Sachs, Bank of America and Citigroup have been more selective with their forays into crypto, opting mostly to serve industry stalwarts like Coinbase, a publicly traded exchange that reports to (Reuters/Mike Segar/Reuters Photos)

Wall Street giants such as JPMorgan, Goldman Sachs, Bank of America and Citigroup have been more selective with their forays into crypto, opting mostly to serve industry insiders such as Coinbase, a publicly traded exchange that reports to the SEC.

Gemini, the exchange founded by the billionaire Winklevoss twins recently sued by the SEC for offering unregistered securities, also remains a client of JPMorgan, Goldman Sachs, State Street and Fidelity Investments, according to a Monday company statement.

Goldman Sachs, State Street and Fidelity declined comment.

STOCK MARKET EXPERT SAYS FED WILL PIVOT AND COULD PRICES “VERY SOON”

“We are not looking to move forward into crypto,” a spokesperson for one of the largest US banks told FOX Business. “The current regulatory environment is not encouraging for us.”

Some of the banks contacted by FOX Business were reluctant to talk on the record about their crypto partnerships because of increased scrutiny surrounding the industry and fear of causing alarm to current customers.

“The banking system itself is a mystery to many Americans, let alone the crypto industry,” said an executive at a crypto-friendly bank. “We don’t want to scare our customers by making them think something like Silvergate or Signature could happen to us.”

Many in the crypto industry worry that banks’ reluctance to partner with companies that offer digital assets is another sign that regulators are inevitably forcing crypto innovation offshore.

Some US banks are looking to fill the growing void. ProvBank, Western Alliance and Bridge Bank are still offering their services to stranded crypto victims. (Jakub Porzycki/NurPhoto via Getty Images/Getty Images)

“If the government properly regulated crypto, major banks would be more open to providing them services,” said technology investor and advisor Asheesh Birla. “As such, they are forced to use smaller banks with fewer resources or look for offshore alternatives.”

However, some US banks are looking to fill the growing void. ProvBank, Western Alliance and Bridge Bank are still offering their services to stranded crypto victims. BNY Mellon continues to provide services on a case-by-case basis to firms with digital assets.

FIRST REPUBLIC SHARES SEEMS LIKE THE FEAR OF WIDER FINANCIAL CRISIS

Circle, an issuer of the USDC stablecoin that previously banked with Signature, just announced a new transactional partnership with New Jersey-based Cross River Bank, which has also taken on new clients.

CLICK HERE TO GET THE FOX BUSINESS APP

On the international side, HSBC, Santander and Deutsche Bank are also willing to connect with crypto firms, according to VC firm Digital Currency Group, the parent company of Grayscale Investments and Genesis Trading.

On Monday, HSBC bought the British arm of the collapsed Silicon Valley Bank for one British pound.