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 is mostly a startup in several industries of the innovation sector, was closed by the California Department of Financial Protection and Innovation on March 10.
The reason for the closure remains to be seen, but the news has sent shock waves through the industry, particularly driven by issuer Circle USD Coin (USDC) which has more than $3.3 billion of its $40 billion in reserves locked up in the bank.
Signature Bank, which also serves several cryptocurrency companies, followed the same fate on March 12. New York Department of Financial Services (NYDFS) took possession of the bank to prevent further bank runs as customers look to withdraw funds from SVB and Signature.
The closing of SVB was particularly difficult, as stablecoin USDC briefly lost its $1 peg driven by major uncertainty about the effect of Circle’s exposure on its ability to manage redemptions.
Related: Silicon Valley bank collapse: Everything that’s happened so far
USDC has seen its peg return to the $1 mark after Circle CEO Jeremy Allaire announced that the stablecoin issuer has established a new banking partner on March 13 in the United States.
Due to the turmoil of the past few days, the cryptocurrency ecosystem has now scrutinized its relationship with traditional financial institutions that service fiat currency deposits, withdrawals and monetary flows.
Coinbase CEO Brian Armstrong took to Twitter on March 13, saying that the American cryptocurrency exchange had previously considered a feature that could potentially pass or serve to bridge the gap experienced in the latest major banking failure.
Ryan Lackey, CSO of cryptocurrency insurance company Evertas, asked whether exchanges have considered offering neobanking services to high-net-worth individuals and businesses:
Hey @brian_armstrong and @coinbase — after the SVB hell of the weekend, why not set up Coinbase as some kind of HNW + business neobank, with “pass through assets to community banks and treasuries” as a first class option in parallel with crypto.
— Ryan Lackey (@octal) March 13, 2023
Armstrong replied saying that Coinbase needs to add some features and opened the door for comments in the thread:
“It’s definitely something we’ve thought about. It needs some more features like a cable out, multi-user support, etc. Non-fractional reserve “banking” definitely seems more interesting now.
Coinbase confirmed that it has held around $240 million in Signature Bank on March 10, but expects to return all of the company’s cash holdings.
The closure of SVB and Signature Bank fueled fears of a regional bank meltdown in the United States over the weekend. The Bloomberg report also indicated that the United States Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) are considering creating a fund to cover deposits in ailing banks.