Shalini Nagarajan

The Federal Deposit Insurance Corporation requested Cross River Bank, currently one of the most visible pro-crypto banks, to take corrective action to eliminate unsafe banking practices and improve its supervision of internal controls and credit underwriting practices.



The agency revealed on April 28 that Cross River Bank entered into a consent agreement on March 8, indicating the bank’s acceptance to take rectifying actions.&nbsp;



However, Cross River did not accept nor deny violations cited in a 2021 report of examination.



“The FDIC considered the matter and determined, and the bank neither admits or [sic] denies, that it engaged in the unsafe or unsound banking practices related to its compliance with applicable fair lending laws and regulations,” the order said.



The <a href="https://orders.fdic.gov/sfc/servlet.shepherd/document/download/0693d000007xEStAAM?operationContext=S1" target="_blank" rel="noreferrer noopener">order</a> requests the bank to eliminate or correct unsound banking practices that were identified in the 2021 report, address deficiencies and weaknesses identified in future consumer compliance reports of examination.&nbsp;



It must also hire an independent third party to conduct a Fair Lending Resources study within 60 days of the order and submit a written summary to the Regional Director for review, taking into consideration the bank’s size, growth plans, number of credit products, third parties and merchants.



Cross River Bank provides banking services to a number of individuals, businesses and financial institutions. It’s also known for providing banking services, payment processing, digital wallets and lending services to a number of crypto-related businesses and platforms



The order was executed before stablecoin issuer Circle <a href="https://blockworks.co/news/new-circle-bank-after-usdc-depeg">said it was moving</a> from banking with collapsed Silicon Valley Bank to Cross River Bank.



“Trust, safety and 1:1 redeemability of all USDC in circulation is of paramount importance to Circle, even in the face of bank contagion affecting crypto markets,” CEO Jeremy Allaire said in a <a href="https://www.circle.com/en/pressroom/3.3-billion-of-usdc-reserve-risk-removed-dollar-de-peg-closes" target="_blank" rel="noreferrer noopener">statement</a>.&nbsp;



Just prior to the release of the FDIC’s consent order, Cross River Bank published a first-quarter <a href="https://www.crossriver.com/newsroom/q1-message-from-gilles" target="_blank" rel="noreferrer noopener">update</a>, which showed a 32% year-over-year increase in “fintech lending.”



It also warned that with increasing regulatory scrutiny on banks, especially those supporting fintechs, Cross River faces continuous regulatory examination.



“We view our compliance capability as a strategic advantage” the bank said.



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Circle Banking Partner Ordered to Correct ‘Unsafe’ Practices

Darren Kleine

Operation Chokepoint 2.0 is indeed underway, according to Rob Leshner, founder of Compound Labs.



The <a href="https://www.youtube.com/watch?v=RNkyE2HgBi4">Empire podcast</a> guest spoke to Blockworks about the de-banking phenomenon after recently tweeting: “Make no mistake. The government wants to kill one of the most innovative segments of the US economy, which is crypto.”



Leshner said it’s not really a controversial statement any more: “There is a coordinated effort to de-bank the crypto industry through not entirely normal policy.” Much of this effort is happening behind the scenes, Leshner explained. It’s a similar method to how, a decade ago, <a href="https://blockworks.co/news/operation-choke-point-2-0">Chokepoint 1.0</a> tried to de-bank a legal industry by piling on the red tape in an effort to make it economically unsustainable, he said.



<a href="https://blockworks.co/tag/silvergate" target="_blank" rel="noreferrer noopener">Silvergate</a> and <a href="https://blockworks.co/tag/signature" target="_blank" rel="noreferrer noopener">Signature Bank</a> were the primary US on and off ramps between the banking system and crypto, Leshner explained. “Both of these went from functional to non-existent in an incredibly short amount of time following statements by banking industry regulators.” A number of legislators and actors in the ecosystem, he said, were excited for these banks and their crypto activities to no longer be functional.



<h2 class="wp-block-heading">Banks functioning normally, sans crypto</h2>



Even post-failure, the entire banking apparatuses of Signature – outside of crypto – continue to function normally. “Signature was sold to another bank and all of their customers, with the exception of crypto customers, are up and running” Leshner says. Crypto companies – and only crypto companies – were de-banked in this process.&nbsp;



Following the bank’s sale, both the Signet payment system and crypto balances were not restored. The bank effectively transitioned overnight from being one of the primary institutions serving crypto businesses to one that does not at all. “Silvergate, likewise, is 100% offline for crypto companies” Leshner noted.



Leshner observed, “At this point, there’s no mainstream supported infrastructure for legal institutions that interact with crypto to interact with the banking system.” A single bank – Cross River Bank – has essentially become the lone bridge between banking and crypto organizations, Leshner said.



This leaves Cross River as the most visible remaining explicitly pro-crypto bank, said Nic Carter, general partner at Castle Island Ventures and board chair at Coin Metrics. Banks, Carter explained, are facing “increasing demand for higher compliance overhead, endless paperwork requests from regulators, and demands that they reduce exposure to crypto.”



In addition to that, Carter said Cross River Bank is now facing criticism for their role in the <a href="https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program">PPP</a> program, which “helped businesses keep their workforce employed during the Covid-19 crisis.”&nbsp;



“Even though PPP was explicitly disseminated with the understanding that there would be fraud,” Carter explained, “the government deliberately overlooked that with the intent of getting funds out the door quickly.”



Now, it seems the government has changed its tune, at least when it comes to oversight of Cross River Bank. “It’s a bit of a pretext that now Cross River Bank is being looked into for being too loose with their PPP disbursements,” Carter said, “because that was precisely the objective of the government program.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG6720676907" width="100%"></iframe>







Reflecting on the events, Leshner concluded, “The map was wiped clean in an incredibly short amount of time due to government action in an unanticipated way…There’s an effort to de-bank crypto and it’s been – unfortunately – incredibly effective.”



“The message remains clear,” Carter said, “bank crypto firms, and risk losing everything.”



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Chokepoint 2.0: Efforts To De-bank Crypto Highly Effective

Casey Wagner

After losing its dollar peg over a tumultuous weekend for crypto, USDC issuer Circle says its reserves are safe and sound, and it&#8217;s moving on to a new banking partner: Cross River Bank.&nbsp;



After a <a href="https://blockworks.co/news/signature-silicon-valley-bank-made-whole">joint Sunday statement from US regulators</a> about the status of deposits at Silvergate, Silicon Valley Bank and Signature, <a href="https://blockworks.co/tag/circle" target="_blank" rel="noreferrer noopener">Circle</a> said its “$3.3B USDC reserve deposit held at Silicon Valley Bank, about 8% of the USDC total reserve, will be fully available when U.S. banks open Monday morning.” 



“Trust, safety and 1:1 redeemability of all USDC in circulation is of paramount importance to Circle, even in the face of bank contagion affecting crypto markets,” co-founder and CEO of Circle Jeremy Allaire said in the <a href="https://www.circle.com/en/pressroom/3.3-billion-of-usdc-reserve-risk-removed-dollar-de-peg-closes" target="_blank" rel="noreferrer noopener">statement</a>. 



“We are heartened to see the U.S. government and financial regulators take crucial steps to mitigate risks extending from the banking system.”



The Boston-headquartered company also said it was starting to partner with a new institution, Cross River Bank, as its commercial banking service for producing and redeeming USDC.&nbsp;



Cross River Bank was founded in 2008 and is a known favorite among traditional financial players like Visa. It has quietly expanded its payments and fintech exposure in the past year with help from backers including Andreessen Horowitz and T. Rowe Price Investment Management. 



Crypto clients using Cross River include Coinbase and Stripe. In March 2022, the bank, headquartered in Fort Lee, was valued at over $3 billion after closing its most recent funding round.&nbsp;



Circle is also ramping up ties to the <a href="https://blockworks.co/tag/bny-mellon" target="_blank" rel="noreferrer noopener">Bank of New York Mellon</a>, where it currently keeps the majority of its total $9.7 billion cash holdings. The remaining holdings at SVB will move to BNY Mellon, Circle said. 



<a href="https://blockworks.co/price/usdc" target="_blank" rel="noreferrer noopener">USDC</a> dipped to an all-time low of around $0.87 Friday, according to data from CoinMarketCap. It was trading just under $0.99 at time of publication.



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