The broader cryptocurrency community continues to debate the consequences of the closure of three large US banks.; there have been requests for neobanking services for the sector.
The Silicon Valley Bank (SVB), which has traditionally served start-ups in various innovation sectors, was shut down by the California Department of Financial Protection and Innovation on March 10.
The reasons surrounding the shutdown are still coming to light, but the news sent shockwaves through the industry, primarily driven by USD Coin (USDC) issuer Circle, which has more than $3.3 billion of its $40 billion reserves locked up at the bank.
Signature Bank, which also services cryptocurrency companies, met a similar fate on March 12.. The New York Department of Financial Services took possession of the bank to prevent further bank runs as customers rushed to withdraw funds from SVB and Signature.
The SVB shutdown was especially harsh, as the USDC stablecoin briefly lost its $1 peg due to high uncertainty about the effect Circle’s exposure would have on its ability to manage redemptions.
USDC has seen its peg approach the $1 mark again after Circle CEO Jeremy Allaire announced that the stablecoin issuer has landed new banking partners in the United States.
Given the turmoil of the past few days, The cryptocurrency ecosystem is taking a closer look at ties to traditional financial institutions that make deposits, withdrawals, and money flows in fiat.
Coinbase CEO, Brian Armstrong posted on Twitter on March 13 that the US crypto exchange firm had already looked into adding features that could prevent or fix loopholes exposed in the latest traditional banking failure.
Ryan Lackey, director of strategy at 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, 2023
Hey @brian_armstrong and @coinbase – after the SVB hell of the weekend, why don’t you create Coinbase as some kind of HNW + corporate neobank, with “moving assets to community banks and treasuries” as an option first class in parallel with cryptocurrencies?
Armstrong responded by saying that Coinbase would need to add a number of features. and opened the door to comments in the thread:
“It’s definitely something we’ve thought about. We need some more features like outbound transfers, multi-user support, etc. Non-fractional reserve “banking” definitely looks more attractive right now.”
Coinbase confirmed that it had around $240 million in Signature Bank on March 10, but expects to get all of its cash holdings back.
The closure of SVB and Signature Bank raised fears of widespread runs on regional banks across the US over the weekend.. A Bloomberg report also suggests that the US Federal Reserve and the Federal Deposit Insurance Corporation are considering creating a fund to cover deposits from troubled banks.
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