Crypto

Crypto banks are trying to reset their risky ambitions

Smaller banks that once wanted to serve hot sectors like cryptocurrency are now exiting those industries.

This as long-time crypto industry partner Silvergate Bank, posting hefty $8.1B quarterly losses, is closing its crypto business lines and exiting the tumultuous space.

Silvergate CEO Alan Lane said in a recent call with analysts that the bank plans to discontinue crypto custody services and eliminate part of its digital asset product portfolio. The bank also plans to reduce its headcount by almost 40%.

The Metropolitan Commercial Bank, the former banking partner of bankrupt crypto brokerage Voyager Digital, said its recent decision to exit the crypto marketplace will have minimal financial impact on operations.

“In total [Metropolitan’s crypto clients] currently account for about 1.5% of total revenue and 6% of total deposits,” the bank said in a Jan. 9 statement. “[Metropolitan’s] Relationships with these customers are limited to providing debit card, payment and account services.”

The bank added in the statement that it has already started finalizing its relationships with these clients and expects to exit the crypto industry before the end of 2023.

At Moonstone Bank, the situation seems a little more pressing.

Federal prosecutors have reportedly seized nearly $50 million in deposits, more than half of the bank’s total assets, in connection with their investigation into Sam Bankman-Fried’s alleged fraudulent activities at the head of his former crypto exchange FTX.

Small banks change their names

Moonstone Bank, America’s 26th smallest banking institution, which operated for more than a century as an agricultural lender with a Washington state office under the name Farmington State Bank, has since announced that it is returning to its roots as a community bank and its Crypto Discontinuing and Cannabis Sector Ambitions.

It also changes its name back to Farmington State Bank.

“Farmington State Bank will no longer use the Moonstone Bank name,” the bank said in a statement. “The Farmington State Bank brand, recognized in the local community for 135 years, will be featured prominently throughout the bank’s branding, and customers will be watching the transition over the coming weeks.”

The bank added in the statement that it plans to return to its original mission and discontinue its “pursuit of an innovation-driven business model of developing banking services for industries such as crypto-assets or hemp/cannabis.”

As PYMNTS reported in 2020, a company called FBH Corporation acquired Farmington State Bank and began embracing an innovative startup business model, aiming to serve new customers in “underserved industries.”

FTX’s sister hedge fund, Alameda Research, through its venture arm, invested $11.5 million for a non-controlling minority interest in the bank in an FBH-led fundraiser in January 2022. The bank’s name was changed shortly after the Changed investment from Alameda to Moonstone.

Not long after, an account going by the name of “FTX Digital Markets” deposited $49,999,500 into a “Moonstone” account. According to a New York Times report, Moonstone Bank was worth just $5.7 million prior to Alameda’s investment.

That money has since been recovered in lawsuits related to a broader effort to seize FTX-linked assets as part of the company’s restructuring.

As set out in the statement announcing the business withdrawal and name change, “the bank has always been committed to safe and sound practices, has kept its balance sheet liquid and customer deposits have remained safe and fully accessible”.

Prosecutors also seized an estimated $100 million from FTX Digital Markets accounts held at four different branches of Silvergate Bank, according to Washington State publication The Spokesman-Review.

Unique Benefits

The crypto industry has long been viewed lopsidedly by the traditional financial sector, and regulators haven’t viewed the digital asset landscape with much affection either — making it difficult for crypto companies to find banking services.

Even FinTech companies are struggling to obtain banking licenses and are finding it difficult to join the Federal Reserve system.

Federal Reserve Bank members gain access to a number of attractive benefits, especially for previously unbanked organizations – including access to the SWIFT payment system and cheaper access to credit. Affiliates may also send money across borders via correspondent bank accounts.

The former Moonstone Bank was able to apply for and receive Federal Reserve Bank membership despite its crypto connections.

“It’s just amazing that all of this has been approved,” Sens. Elizabeth Warren and Tina Smith wrote in a December letter to Fed Chair Jerome Powell, urging U.S. banking regulators to review the ties between the industry and crypto firms to investigate.

PYMNTS Data: Why Consumers Are Trying Digital Wallets

A PYMNTS study, New Payments Options: Why Consumers Are Trying Digital Wallets, finds that 52% of US consumers have tried a new payment method in 2022, with many choosing to try digital wallets for the first time.

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