Public Worry Grows Over Bank Stability

In a recent Gallup poll conducted across the United States in April, 48% of respondents expressed concern about their money in the bank, with almost 20% indicating they were “very concerned.” The poll was conducted after the collapse of Silicon Valley Bank and Signature Bank but before the failure of First Republic Bank in late April. According to Gallup, this level of worry is on par with the last bank-induced financial crisis in 2008, when financial institutions previously believed to be “too big to fail” collapsed.

Experts at the Hoover Institution think tank suggest that if half of all uninsured savers withdrew their cash, 186 American banks would be at risk of impairment. These banks have total assets of $300 billion but represent less than 5% of the estimated 4,135 FDIC (Federal Deposit Insurance Corporation) insured commercial banks in the United States.

Additionally, California-based PacWest, Arizona’s Western Alliance, and Memphis-based First Horizon reportedly hang in the balance following a share price slump last week. A more concerning report from the UK’s Telegraph earlier this month suggested that half of the banks in America could be insolvent. The report cited research published in April by Stanford University banking expert Amit Seru, who estimated that more than 2,315 U.S. banks are currently sitting on assets worth less than their liabilities.

“The U.S. banking system’s market value of assets is $2.2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity,” Seru said. This gap is due to the banks’ underestimation of the risk of loan defaults and represents a significant threat to the stability of the banking system.

The current public opinion of banks appears to be dwindling as the industry struggles to contain the collapse of several high-profile financial institutions in recent months. While these concerns are not yet at crisis levels, they do suggest a lack of confidence in the banking system. It remains to be seen what steps regulators will take to address these issues and restore public faith in the stability of financial institutions.


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Australian Banks Ordered to Report Crypto Transactions

The Australian Prudential Regulation Authority (APRA) has reportedly ordered local banks to report on their exposure to cryptocurrency transactions in the wake of recent banking collapses, including the Silicon Valley Bank (SVB) and Silvergate failures. The regulator is seeking to obtain more information and insight into banking exposures to crypto assets and associated risks.

According to the Australian Financial Review, the APRA has instructed banks to improve their reporting on crypto assets and provide daily updates to the regulator. The agency has started requesting banks to declare their exposures to startups and crypto-related companies, citing three people familiar with the matter. The new measures are reportedly part of the APRA’s increased supervision of the banking sector, aimed at mitigating the risk of similar collapses occurring in Australia’s banking system.

The move comes in the aftermath of the collapse of global banks, including Credit Suisse and SVB, which have raised concerns over the stability of the financial system. On March 19, UBS Group agreed to buy Credit Suisse for $3.2 billion after the latter collapsed over the weekend. The banking sector has been facing pressure from investors and regulators to improve risk management and transparency.

Barrenjoey analyst Jonathan Mott reportedly warned that while the situation “remains stable” for Australian banks, confidence could be quickly disrupted, putting pressure on bank margins. The APRA’s increased scrutiny of cryptocurrency transactions is aimed at mitigating this risk, as the regulator seeks to gain a deeper understanding of the potential impact of crypto assets on the stability of the banking system.

The Australian government has been taking a cautious approach to regulating the cryptocurrency industry, with the Reserve Bank of Australia (RBA) recently stating that it has no plans to issue a digital version of the Australian dollar. However, the APRA’s move to increase reporting requirements on crypto assets suggests that regulators are taking a more active role in monitoring the sector.

In conclusion, the APRA’s decision to order local banks to report on cryptocurrency transactions reflects the growing concern over the potential risks posed by crypto assets to the stability of the banking system. While the situation in Australia remains stable, the recent collapses of global banks have highlighted the need for improved risk management and transparency in the financial sector. The APRA’s increased scrutiny of the crypto industry is a step towards achieving this goal, as regulators seek to gain a deeper understanding of the potential impact of crypto assets on the stability of the financial system.


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Cryptocurrency Community Debates Fallout from Closure of Major American Banks

The closure of three major American banks that serve cryptocurrency firms has sent shockwaves through the broader cryptocurrency community. Silicon Valley Bank (SVB), which has traditionally served startups across several innovation sector industries, was shuttered by California’s Department of Financial Protection and Innovation on March 10, while Signature Bank met a similar fate on March 12. The closures have sparked a debate within the cryptocurrency community about the risks of traditional finance institutions that serve fiat currency deposits, withdrawals, and monetary flows.

The reasons surrounding the closures are still coming to light, but they have caused particular concern within the cryptocurrency community due to their exposure to stablecoins. USD Coin (USDC) issuer Circle, for instance, had over $3.3 billion of its $40 billion reserves locked up in SVB, which caused major uncertainty around the effect Circle’s exposure would have on its ability to manage redemptions. As a result, the USDC stablecoin briefly lost its $1 peg. However, 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 in the United States.

The closure of the banks has also led the cryptocurrency ecosystem to take a closer look at neobank services that could potentially bypass or serve to bridge gaps exposed in the latest mainstream banking failure. Coinbase CEO Brian Armstrong took to Twitter on March 13 to discuss the need for more innovative solutions in the cryptocurrency industry. According to Armstrong, Coinbase has previously considered features that could potentially address the risks associated with traditional finance institutions.

One of the biggest risks associated with traditional finance institutions for cryptocurrency firms is the risk of bank runs. This was a major concern for Signature Bank, which was taken over by the New York Department of Financial Services to prevent further bank runs as customers scrambled to pull funds from SVB and Signature. As a result, there is a growing demand within the cryptocurrency community for neobank services that can offer stability and security.

One potential solution that has been proposed is for cryptocurrency firms to create their own neobank services. This would allow them to bypass the risks associated with traditional finance institutions altogether and create a more secure and stable financial ecosystem for the cryptocurrency industry. However, creating a neobank from scratch is not without its challenges, particularly in terms of regulatory compliance and capital requirements.

Another potential solution is to partner with existing neobank services that have already established themselves as trustworthy and reliable institutions. This would allow cryptocurrency firms to benefit from the stability and security offered by neobank services without having to build their own from scratch. However, this approach would still require regulatory compliance and would require cryptocurrency firms to give up some control over their financial ecosystem.

Regardless of the approach taken, it is clear that the closure of major American banks that serve cryptocurrency firms has exposed significant risks associated with traditional finance institutions. As a result, the cryptocurrency ecosystem is now exploring new ways to create a more stable and secure financial ecosystem that can support the growing demand for cryptocurrencies and stablecoins. Whether through the creation of new neobank services or through partnerships with existing institutions, the cryptocurrency industry is working to build a financial ecosystem that can weather the challenges of the traditional financial sector.

In addition to neobank services, the cryptocurrency industry is also exploring other innovative solutions to address the risks associated with traditional finance institutions. For example, decentralized finance (DeFi) platforms have emerged as a potential alternative to traditional banking services. DeFi platforms operate on blockchain technology and allow users to access financial services without relying on intermediaries like banks. By eliminating intermediaries, DeFi platforms can reduce the risks associated with traditional banking and offer greater transparency and security to users.

However, DeFi platforms are still in their early stages of development and are not yet able to offer the same level of stability and security as traditional banking services. Furthermore, they are currently facing significant regulatory challenges, particularly in the United States, where regulatory authorities are grappling with how to regulate DeFi platforms.

Despite these challenges, the growth of the cryptocurrency industry shows no signs of slowing down. In fact, many experts predict that cryptocurrencies and stablecoins will become increasingly important in the global financial system in the years to come. As a result, it is becoming increasingly important for the cryptocurrency industry to develop a stable and secure financial ecosystem that can support the growing demand for these new financial instruments.

In conclusion, the closure of three major American banks that serve cryptocurrency firms has sparked a debate within the cryptocurrency community about the risks of traditional finance institutions. As a result, the industry is now exploring new ways to create a more stable and secure financial ecosystem that can support the growing demand for cryptocurrencies and stablecoins. Whether through the creation of new neobank services, partnerships with existing institutions, or the development of DeFi platforms, the cryptocurrency industry is working to build a financial ecosystem that can weather the challenges of the traditional financial sector.


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Banks increase risks to stablecoins

The recent depegging of Circle’s USD Coin (USDC) caused a stir in the cryptocurrency market, with Binance CEO Changpeng “CZ” Zhao pointing fingers at traditional banks for their role in increasing the risks to stablecoins. Circle’s disclosure that Silicon Valley Bank (SVB) did not process its $3.3 billion withdrawal request led to the depegging of USDC, causing the U.S. dollar-backed stablecoin to lose its peg. The event raised concerns among investors and regulators about the stability of stablecoins and the role of banks in their operations.

The crypto market had already been facing challenges in 2022, following the death spiral of the Terra ecosystem, which triggered a bear market, causing losses in billions and intensifying regulatory scrutiny over cryptocurrencies. However, the depegging of USDC brought the issue of stablecoins to the forefront of the discussion, with many questioning the risks and stability of these digital assets.

Stablecoins are digital assets that are pegged to a fiat currency, such as the U.S. dollar, with the aim of providing stability and reducing the volatility associated with cryptocurrencies. However, the recent events surrounding USDC have raised questions about the reliability of stablecoins, particularly in relation to their pegging mechanisms and the role of banks in their operations.

Binance CEO CZ’s remarks about the risks posed by traditional banks to stablecoins highlight the growing concerns about the stability and reliability of these digital assets. CZ argued that banks can destabilize stablecoins by delaying or blocking withdrawal requests, as seen in the case of SVB and Circle’s USDC. This could lead to a loss of confidence in stablecoins, causing investors to withdraw their holdings and triggering a sell-off in the crypto market.

The depegging of USDC has also intensified regulatory scrutiny over stablecoins and their operations. Regulators have expressed concerns about the lack of transparency and accountability in the stablecoin market, as well as the risks associated with their use in illegal activities, such as money laundering and terrorism financing. The recent events surrounding USDC have raised questions about the need for greater oversight and regulation of stablecoins, particularly in relation to their pegging mechanisms and the role of banks in their operations.

In conclusion, the depegging of Circle’s USDC has raised concerns about the reliability and stability of stablecoins and highlighted the risks posed by traditional banks to these digital assets. The event has intensified regulatory scrutiny over stablecoins and their operations, raising questions about the need for greater oversight and regulation in this area. While stablecoins have the potential to provide stability and reduce volatility in the crypto market, their reliability and stability will depend on their pegging mechanisms and the regulatory framework in which they operate.


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US Crypto Holders Trust Banks and Exchanges for Custody

A recent survey conducted by Paxos has shown that American crypto holders still trust intermediaries such as banks, crypto exchanges, and mobile payment apps to hold their digital assets. The survey, which was conducted in January, aimed to understand how the crypto winter and large industry fallouts in 2022 affected consumer behavior and confidence in the crypto ecosystem.

Despite the volatile nature of the crypto industry in 2022, including the bankruptcies of FTX and Alameda Research, the survey found that 89% of respondents still trusted intermediaries to hold their crypto assets. This is a significant finding, given the high-profile collapses and poor risk management practices seen in several crypto companies.

Interestingly, the survey also found that there was an increasing desire among consumers to buy Bitcoin, Ether, and other digital assets from traditional banks. The survey revealed that 75% of respondents were likely or very likely to purchase crypto from their primary bank if it were offered, a 12% increase from the year before. Furthermore, 45% of respondents reported they would be encouraged to invest more in crypto if there was more mainstream adoption by banks and other financial institutions.

According to Paxos, there is a significant untapped opportunity for banks if they expanded their offerings to include digital assets. Offering these services would satisfy increasing demand and result in higher engagement. However, the survey was conducted before more recent crypto headwinds, such as the bankruptcy of crypto lender Genesis, the crackdown on Binance USD (BUSD) involving Paxos, and the financial uncertainty of crypto bank Silvergate Capital.

The survey was conducted on 5,000 participants who were over 18 years old, lived in the United States, had a total household income greater than $50,000, and had purchased cryptocurrency within the last three years. Despite the volatile 2022 crypto landscape, the survey shows that consumers didn’t lose faith in their crypto investments, underlining the long-term confidence of those participating in crypto markets.


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Citizens Trust Bank Holds $65 Million in USD Coin reserves

Citizens Trust Bank, a financial institution that is regulated by the Federal Deposit Insurance Corporation (FDIC), has partnered with Circle Internet Financial to hold some of its reserves in USD Coin (USDC). The move, which the companies said would promote financial inclusion and digital literacy in the greater Atlanta area, was announced earlier this week.

As part of a bigger partnership between the two firms, Circle announced on the 24th of February that the Atlanta-based Citizens Trust Bank will hold $65 million in USDC reserves. This partnership is part of a larger cooperation between the two organizations. Small firms will have access to finance thanks to the bank’s USDC reserves, and those reserves will also be utilised for other projects aimed at expanding financial inclusion. According to Cynthia N. Day, president and chief executive officer of Citizens Trust, owning USDC would also help enhance the bank’s balance sheet.

The Federal Deposit Insurance Corporation (FDIC) has designated Citizens Trust Bank as a minority-owned depository institution (MDI), which indicates that minority people make up the majority of either the bank’s voting shares or its board of directors. In 1947, the bank became a member of the Federal Reserve System.

The bank was able to attract an additional $220 million in deposits during the years 2020 and 2021. The most recent year for which information is readily accessible to the public is 2021, and during that year Citizens provided funding for business, consumer, and residential mortgage loans totaling 157 million dollars.

More users are depending on dollar-pegged assets to hold collateral, trade cryptocurrency, and generate income, which has led to the growth of stablecoin settlements in lockstep with the explosion in decentralized finance that has occurred over the last two years. Despite this, the use of stablecoins for payments is still relatively uncommon because of regulatory hurdles.


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The Fed Rejects Custodia Bank’s Membership Application

Custodia Bank, a bank that deals in cryptocurrencies, asked the United States Federal Reserve to reconsider its membership application to the Federal Reserve System. However, the United States Federal Reserve turned down this request. A district court has allowed a lawsuit between Custodia Bank and the United States Federal Reserve to continue.

Custodia’s application “was inconsistent with the requisite elements under the law,” according to an earlier decision made by the Federal Reserve Board, which was cited in the central bank’s announcement on February 23 on the denial of membership.

The Federal Reserve rejected Custodia’s membership application in January, about four years after the company first submitted the request in 2019. Applicants have the right, according to the regulations of the board, to request that membership choices be reconsidered.

The reason the Fed gave for rejecting Custodia’s application was that the company’s management structure was “insufficient.”

In addition to this, it referred to a joint statement that it had prepared jointly with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. In this declaration, it said that cryptocurrencies were “inconsistent with safe and sound banking practices.”

Custodia has said that it would want to become a member of the Federal Reserve System in order to be subject to the same regulations that are imposed on conventional banks. In addition, this would pave the way for other cryptocurrency institutions to be subject to the same stringent requirements.

This week, on February 22, a judge in a district court in Wyoming dismissed a petition by the Federal Reserve board to dismiss a complaint filed by Custodia about a delay of more than two years in the opening of a master account with the Federal Reserve.

With a master account, Custodia would be able to access the payment systems of the Federal Reserve without having to use any other banks as intermediaries. Custodia’s request for a master account with the Fed was turned down on January 27, more than two years after the company first submitted its request for the account in October 2020.

After that, the Fed made a motion to dismiss the case since the account rejection rendered the complaint meaningless. Custodia, on the other hand, submitted a proposed amended complaint to the court on February 17, alleging that the Federal Reserve unfairly singled out and rejected its application as part of a “concentrated and coordinated” effort with the administration of President Joe Biden and requesting that the court reverse the decision.

Nathan Miller, a spokeswoman for Custodia, was quoted as saying in a statement that was released on February 17 that the case “zeroes in on the main legal issue: whether Congress ever authorized the Fed jurisdiction to determine master accounts at all.” He also said that the Fed “pressed the hand” of the cryptocurrency bank, stating that the institution “tried every avenue to find a sensible route ahead.”

A deadline of March 1 has been set by the judge for Custodia to submit its first revised complaint to the court.


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DZ Bank to Integrate Digital Currencies Into Asset Management Services in collaborated with Turkish technology company

Together with the digital asset company Metaco, Germany’s second-largest bank by asset size, DZ Bank, will completely incorporate digital currencies into its asset management services. This endeavor will take place in the next months.

“With the offering we can build by using this technology, we trust that we can create a long-lasting and rapidly expanding business cooperation as well as an attractive solution for our customers that can also meet the requirements of digital currencies and decentralized financial instruments,” Christopeit added. “In addition to this, we believe that we will be able to meet the demands of digital currencies and decentralized financial instruments.”

Craig Perrin, who serves as the chief sales officer for Metaco, offered his thoughts on the relationship as well. The CEO conveyed the joy that the team has in providing assistance for the institutional products of DZ Bank. He said that the infrastructure provided by Metaco is purpose-built to provide assistance to organizations interested in adopting digital assets and taking part in the digital asset market. He continued by saying, “We are thrilled to announce this partnership as it further confirms Metaco as a market leader in Germany, and it has the confidence of some of the top banks and exchanges in the nation.”

In Germany, Metaco has been actively engaging with a wide variety of significant companies in the industry. The digital asset management platform made the announcement on February 9 about their relationship with the German DekaBank to establish a tokenization platform that is based on blockchain technology. The news indicates that the construction of the infrastructure is scheduled to take place in 2023, and it is possible that it will be made available in 2024.

The digital asset management platform worked with a Turkish carmaker and one of the most well-known local banks in the Philippines, in addition to Germany, which was the primary country involved. On January 10, Metaco entered into a partnership with the Turkish automotive technology firm Togg with the purpose of assisting Togg in securing its smart contract-based vehicle mobility services. The company was also instrumental in assisting UnionBank of the Philippines with the introduction of its custody and trading services for Bitcoin (BTC) and Ether on November 2, 2022. (ETH).


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Banks Holding Cryptocurrencies Face Strict New Regulations in European Parliament

A report on a draft measure that would require banks that hold cryptocurrencies to put aside a significant amount of capital in an attempt to mitigate possible risk has been published by the European Parliament.

EU lawmakers stated in a notice dated February 9 that any framework that is applied to crypto assets should “adequately mitigate the risks of these instruments for the institutions’ financial stability.” These lawmakers proposed that banks apply a risk weight of 1250% on their exposure to digital assets, which is one of the highest risk ratings for investments. The regulations were not supposed to take effect until the 30th of December in 2024, according to the draft legislation.

According to the report, “the rapid increase in the activity of financial markets on crypto-assets and the potentially increasing involvement of institutions in crypto-assets related activities should be thoroughly reflected in the Union prudential framework,” with the goal of “adequately mitigating the risks of these instruments for the institutions’ financial stability.” This recommendation was made in light of the fact that “the rapid increase in the activity of financial markets on crypto-assets and the potentially increasing involvement of institutions in crypto-asset “In view of the recent unfavorable events in the markets for crypto-assets, this matter is far more pressing than it already was.”

The parliament said that the proposed modification was in accordance with the recommendations made by the Basel Committee on Banking Supervision, also known as the BCBS, regarding the mitigation of possible risks. The legislators agreed that these guidelines have to be put into effect before the year 2025.

A vote on the legislation is anticipated to take place in April. The draft law said that the European Commission should present a proposal on the crypto framework by the 30th of June, taking into consideration the criteria under the EU’s Markets in Crypto-Assets framework, or MiCA. After then, it is probable that the whole parliament will be given the option to vote on whether or not the proposed measure should be made into law.


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Silvergate Capital Corp. is the second-most-shorted stock

According to the most recent Short Interest Reporting dated February 9, the cryptocurrency bank Silvergate Capital Corp. is the second-most shorted company in the United States, with nearly 72.5% of its shares being shorted. This information was gathered from the market on February 9.

The Financial Industry Regulatory Authority (FINRA) is responsible for the collection and publication of short interest positions for all equity securities twice per month. When investors and traders take a short position, it indicates that they anticipate a price decline for a particular asset, such as a share of stock. A short seller is someone who bets that the price of a securities will go down.

At the time of this writing, Silvergate stock (SI) had dropped by more than 87% during the course of the previous year. The latest financial report for Silvergate, as well as the legal fights the business is now engaged in about its ties with the defunct companies FTX and Alameda Research, have contributed to the pessimistic outlook on the stock.

The bank made the announcement on January 17 that the common shareholders would be responsible for a net loss of one billion dollars in the fourth quarter of 2022. According to a report published by the United States Securities and Exchange Commission (SEC), Silvergate experienced significant withdrawals of deposits during the period. As a result, the company was compelled to seek funding from wholesale sources and sell debt securities in order to keep its liquidity.

It has been claimed that Silvergate obtained a loan of $3.6 billion from the Federal Home Loan Banks System in the United States in order to minimize the consequences of a spike in withdrawals that occurred after the closure of the cryptocurrency exchange FTX in November.

The bank is being investigated and sued in the United States for allegedly providing assistance to FTX in its fraudulent operations, which include lending to users and commingling their cash. The corporation is being accused of “furthering FTX’s investment scam,” and stockholders are asserting that Silvergate violated the 1934 Securities Exchange Act. An examination of the bank’s involvement in FTX enterprises is now being carried out by the Justice Department.

According to Silvergate, Alameda signed up for a banking relationship with the institution in 2018, which was before to the release of FTX. According to the company’s statements, proper due diligence was performed at the time and continued monitoring of the issue was also performed.

Recently, in response to the issue at the bank, Moody’s Investors Service downgraded the ratings of Silvergate Capital and its bank to “junk,” with a negative outlook for both entities.


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