The wider cryptocurrency community continues to debate the ongoing fallout following the closure of three major American banks, with calls for neobank services for the industry on the cards.
Silicon Valley Bank (SVB), which has traditionally served startups across a number of innovation sector industries, was shuttered by California’s Department of Financial Protection and Innovation on March 10.
The reasons surrounding the closure are still coming to light but the news caused shockwaves through the industry, primarily driven by USD Coin (USDC) issuer Circle having over $3.3 billion of its $40 billion reserves locked up in the shuttered bank.
Signature Bank, which also serves some cryptocurrency firms, followed a similar fate on March 12. The New York Department of Financial Services (NYDFS) took possession of the bank to prevent further bank runs as customers looked to pull out funds from SVB and Signature.
The closure of SVB was particularly hard-hitting, as the USDC stablecoin briefly lost its $1 peg driven by major uncertainty around the effect Circle’s exposure would have on the ability to manage redemptions.
USDC has seen its peg creep back up to the $1 mark after Circle CEO Jeremy Allaire announced that the stablecoin issuer has lined up new banking partners as of March 13 in the United States.
Given the tumult of the past few days, the cryptocurrency ecosystem is now taking a closer look at ties to traditional finance institutions that serve fiat currency deposits, withdrawals and monetary flows.
Coinbase CEO Brian Armstrong took to Twitter on March 13, saying that the American cryptocurrency exchange has previously considered features that could potentially bypass or serve to bridge gaps experienced in the latest mainstream banking failure.
Ryan Lackey, CSO of cryptocurrency insurance firm Evertas, questioned whether the exchange had considered offering neobanking services to high-net-worth individuals and businesses:
Hey @brian_armstrong and @coinbase -- after the SVB hell over the weekend, why don't you set up Coinbase as some kind of HNW + business neobank, with the "pass through assets to community banks and treasuries" as a first-class option in parallel with crypto.
— Ryan Lackey (@octal) March 13, 2023Armstrong replied saying that Coinbase would need to add a number of features and opened the door for comments in the thread:
“Definitely something we've thought about. Need a few more features like outbound wires, multi-user support etc. Non-fractional reserve "banking" is definitely looking more attractive right now.”Coinbase confirmed that it had around $240 million held at Signature Bank on March 10, but expects to recover all of its corporate cash holdings.
The closure of SVB and Signature Bank caused fears of widespread runs on regional banks across the United States over the weekend. A Bloomberg report also suggests that the United States Federal Reserve and Federal Deposit Insurance Corporation (FDIC) are weighing up the creation of a fund to cover deposits at ailing banks.
