A 3-minute look at Circle’s new banking partner, Cross River Bank

Original: “What Is Cross River Bank, USDC Stablecoin Issuer Circle’s New Partner?” by Brandy Betz

Compilation: Moni, Odaily Planet Daily

On March 13, Circle CEO Jeremy Allaire announced a new automated settlement partnership with Cross River to provide customers with automated USDC minting and redemption services. Over the past week, crypto-friendly financial institutions such as Silvergate Bank, Signature Bank and Silicon Valley Bank have struggled, leaving Cross River, a venture-backed and FDIC-insured New Jersey regional bank, to the fore. Its popularity in the crypto industry has also increased.

Who is Cross River?

According to the information disclosed on its website, Cross River was established in 2008, and its current asset size is approximately US$9.9 billion, and its loan issuance volume has exceeded US$100 billion. Unlike most traditional fintech institutions, the US-chartered bank has the regulatory compliance infrastructure to originate loans, as well as the financial infrastructure of a real-time payment system, which means they can legally exchange cryptocurrencies and fiat currencies at any time .

With many crypto companies influenced by Silvergate Bank, Signature Bank, and Silicon Valley Bank, and Cross River’s close relationship with some top venture capital (VC), embracing Cross River seemed like a natural choice.

  • In 2017, Cross River announced the completion of $28 million in financing, with participation from Battery Ventures, Andreessen Horowitz (a16z) and Ribbit Capital;

  • In 2018, Cross River announced the completion of approximately US$100 million in financing, of which US$75 million came from the equity investment of global investment giant KKR. Battery Ventures, Andreessen Horowitz and Ribbit Capital also participated in this round of financing.

It should be noted that part of the reason for the run on the three banks of Silvergate Bank, Silicon Valley Bank and Signature Bank is that they have too many customers of traditional technology companies, which have become a riskier asset in the high dollar interest rate environment, while This seems likely to be the case with Cross River as well, as the bank has also dabbled in tech, for example, in addition to providing financial infrastructure for companies such as Coinbase and Stripe, they also provide “buy now, pay later” services for fintechs such as Affirm. The company issues loans.

Is Cross River reliable?

The collapse of Silvergate Bank began when independent auditors and accounting firms were concerned about its inability to file financial statements, while the collapse of Silicon Valley Bank was apparently very sudden, and then the dominoes fell to Signature Bank, triggering a wave of crypto-friendly bank failures.

University of Florida finance professor Jay Ritter explained:

“Silicon Valley banks are in trouble because they have a maturity mismatch between their assets and liabilities, and they have invested a considerable amount of money in longer-dated Treasury bonds and mortgage-backed securities, and when interest rates go up, the value of those investments goes down. Of course , bank accounting can retain a lot of value on the balance sheet at historical cost (rather than based on current market value), but that doesn’t mean regulators won’t be concerned with current market value, so for Cross River Bank, regulators Definitely going to take that as a warning to make sure they don’t get into the same problems that Silicon Valley Bank did.”

Regulatory scrutiny will extend to banking institutions

In fact, Cross River is not the only bank that encryption companies are considering for payment infrastructure. For example, Circle has also chosen Bank of New York Mellon to store its USDC reserves, while Arizona-based “innovation bank” Western Alliance Bank is currently It is also possible to provide payment infrastructure services for crypto companies. It is no exaggeration to say that many traditional financial institutions still hope to enter the encryption market to fill the gap left by Silvergate Bank, Silicon Valley Bank and Signature Bank.

Previously, everyone believed that the crypto market was relatively risky due to frequent fraud and crypto theft. Last year, there were many high-profile scandals in the crypto market, including the liquidity crisis and the bankruptcy of the cryptocurrency exchange FTX. The collapse undoubtedly exacerbated the turmoil in the encryption industry, which means that regulators are bound to increase their supervision and increase their scrutiny of other cryptocurrency-friendly banks, including paying special attention to the weak balance sheets of these banks, and re-investigating them according to interest rate risk and cryptocurrency risk. Check out the bank.

Regulators will certainly be vigilant now, keeping a close eye on crypto-friendly banks that are still “surviving,” including Cross River, to ensure they are adequately capitalized. Likewise, it will become increasingly difficult for crypto-friendly banks to hide things in the future.

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