The broader cryptocurrency community continues to debate the lingering fallout from the collapse of three major U.S. banks and calls for neobanking for the industry.
Silicon Valley Bank (SVB), which traditionally serves startups in several innovative industries, was closed by the California Department of Financial Protection and Innovation on March 10. The reasons for the shutdown are still coming out, but the news sent shockwaves through the industry, largely due to Circle, the issuer of the U.S. Dollar Coin (USDC), locking up more than $3.3 billion of its $40 billion in reserves in banks.
Signature Bank, which also serves cryptocurrency firms, suffered a similar fate on March 12. The New York Department of Financial Services took over the bank to prevent further bank runs as customers scrambled to withdraw funds from SVB and Signature. The SVB shutdown was particularly severe, with the USDC stablecoin briefly losing its $1 peg due to significant uncertainty surrounding the impact of Circle’s exposure to its ability to manage redemptions.
The USDC peg has climbed back towards the $1 mark after Circle CEO Jeremy Allaire announced that the stablecoin issuer had sought a new banking partner in the United States. Given the turbulence of the past few days, the cryptocurrency ecosystem is now paying close attention to its links with traditional financial institutions that service fiat currency deposits, withdrawals and money movements.
Coinbase CEO Brian Armstrong said on Twitter on March 13 that the U.S. cryptocurrency exchange had previously considered features that might bypass or close vulnerabilities exposed by the latest mainstream banking collapse.
Ryan Lackey, chief strategy officer of cryptocurrency insurance company Evertas, questioned whether the exchange had considered offering neo-banking services to high-net-worth individuals and businesses. Armstrong replied that Coinbase needed to add some features and opened the door for comments in the discussion thread:
"Definitely something we've considered. Need more features like outbound wire transfers, multi-user support, etc. Non-fractional reserve 'banking' looks more attractive now." Coinbase confirmed that it held about $240 million in Signature Bank on March 10, but expects to recover all of its cash holdings.
The closures of SVB and Signature Bank raised fears of widespread runs on regional banks across the U.S. over the weekend. A Bloomberg report also suggested that the U.S. Federal Reserve and the Federal Deposit Insurance Corporation are weighing creating a fund to cover deposits at troubled banks.
