The banking industry is facing instability, and in the US, problems became clearly visible when three crypto-friendly banks ran into trouble earlier this month. These entities are the now well-known Silvergate Bank, Silicon Valley Bank, and Signature Bank.
Signature has since been taken over by Flagstar Bank, and this week, news came in that Silicon Valley Bank had been purchased by First Citizens Bank, with the new owners stating there was a structure “to purchase all of the assets and liabilities,” as part of “a whole bank purchase.”
These continuing events have caused a flurry of speculative claims and counter-claims. Some advocates for the crypto industry assert that a clandestine operation is in process, dubbed Operation Choke Point 2.0, to shut down crypto in the US by cutting off links with conventional banking services.
Others have replied that such claims lack substance and that the banks in question were riddled with problems of their own making, some of which were related to crypto (and notorious entities such as FTX) and some of which were more standard financial problems, but none of which are evidence of conspiracy.
Whichever side of the debate is closer to the truth, the most immediate practical questions are around how crypto companies in the US can now access banking services and what happens next.
Silvergate: the First Domino
When Silvergate Bank went out of operation, it was the first domino to fall, and several large crypto entities, including Paxos, BitStamp, and Coinbase, abruptly shifted their business elsewhere.
Coinbase currently lists the following as institutions it uses for depositing customer funds:
- Signature Bank
- JP Morgan Chase
- Cross River Bank
- Pathward
Note that after Signature Bank went into receivership, and Flagstar Bank then bought its deposits and loan portfolios, that deal did not include digital assets.
A key technical issue for crypto entities following the closure of Silvergate was their sudden inability to utilize the Silvergate Exchange Network (SEN), which was a private network that could facilitate fiat/crypto exchanges around the clock, an operation critical to working with crypto.
The first solution was to move over to Signature Bank, which had its similar system called Signet, but it wasn’t long until it was the turn of Signature Bank to hit critical problems, ending up in FDIC receivership.
As mentioned, a notable characteristic of the Flagstar purchase of Signature is that…
