logo
Crypto, Startups and Banking Make a Scary Mix

Crypto, Startups and Banking Make a Scary Mix

Mint11 hours ago
(Bloomberg Opinion) -- The next must-have accessory for crypto and tech bros looks to be far less sexy than a Lamborghini — it's a banking license. Getting approved is typically time-consuming, bureaucratic and dull, but these budding lenders are likely to find themselves pushing on an open door — and that poses dangers.
Stablecoin issuer Circle Internet Group Inc. and tech billionaire Peter Thiel are among the names linked with trust bank charter applications in recent days. The backdrop to this is a White House pushing for regulators to help innovation and growth in the economy and finance. Some of that is down to the backing Donald Trump got from Silicon Valley billionaires and crypto moguls in last year's presidential race, plus his personal financial interests in memecoins and digital assets.
But it is also down to frustrations with a long drought in new bank formations since the financial crisis of 2008. Before that, many years had seen 100-200 new banks each, according to the Federal Deposit Insurance Corp. Since then, most years have barely seen 10 or 15 lenders open for business. Ultra-low rates have made simple banking less profitable, but campaigners for small banks also blame heavy-handed regulation and tough capital rules.
Michelle Bowman, the Trump-appointed chief regulator at the Federal Reserve, has spoken often about this dearth in new banks and promised to bring back more tailoring of supervision and regulation to make life easier for small banks.
Stoking the system with banks heavily linked to venture capital and crypto could be a terrible idea, however. These two industries were at the heart of the mini-banking crisis in spring 2023 — and not by coincidence. 'These are the most macroeconomically sensitive parts of the economy,' Steven Kelly, associate director of research at Yale School of Management's Program on Financial Stability, told me. 'When interest rates go up, they are the first sectors to turn down.'
Ripple Labs Inc. and BitGo Inc. have recently begun trust bank charter applications, according to Bloomberg News, following the lead of stablecoin issuer Circle, which started its bid to become a bank hot on the heels of its $8 billion initial public offering last month. These national charters don't allow banks to collect deposits or make loans directly, but they can use technology and correspondent banking partners to accomplish the same services. Only one crypto company has gained this kind of national license previously, Anchorage Digital Bank in 2021. But other lenders have become deeply entwined with the industry: The best known, Silvergate Bank and Signature Bank, both failed in March 2023.
Another hopeful is Erebor, a digital bank startup backed by an all-star cast of JRR Tolkien fans, including Thiel and Palmer Luckey, according to several reports last week. Their bank, named for a dragon's mountain home in The Lord of the Rings, will focus on the 'innovation economy' including tech businesses and digital currencies. It aims to fill a gap in the market left by the failure of Silicon Valley Bank.
The 2023 crisis was concentrated around the West Coast tech scene similar to the way Texas suffered a wave of bank failures in the 1980s, as I wrote at the time. The boom and bust of a dominant local industry (oil in the Texas case) caused irreparable harm to the banks most exposed to it. With Silvergate and Signature (the New York-based exception to the West Coast rule), the problem was that a dominant share of their deposits was there only as a gateway to crypto markets: When prices tumbled and trading dried up, the money left, ruining the banks.
At SVB, its funding was mainly cash raised by startup companies. When rising interest rates hit valuations and froze venture capital fundraising, the bank's funds began to shrink too. Startup cash burn became SVB's deposit burn, exposing cracks in its business months before the faster run that killed it off.
These banks were focused on economically sensitive industries that are highly correlated to each other, and they lacked diversification of funding. That's a bad business model and it is much more significant in explaining the 2023 failures than depositor fears about unrealized losses on bonds, or the role of social media in transmitting panic, according to Kelly and Jonathan Rose, a senior economist at the Fed Bank of Chicago, in a paper(1) they co-authored on the 2023 blowups.
Circle, Erebor and the rest look like they're running straight back toward this bad business model trap. The more successful they are and the bigger they grow, the more dangerous they could be. It's worth remembering that Silvergate and Signature were still small when they created fears of a rolling disaster.
As Bowman has discussed in several speeches, the tailoring of bank rules isn't just about size but also complexity and business models. The last of these is what should be ringing alarm bells over these wannabe bankers. The last thing the US needs is a whole new group of banks with a hyper focus on stablecoins, crypto and startups.
More From Bloomberg Opinion:
(1) Rushing to Judgment and the Banking Crisis of 2023. Steven Kelly and Jonathan Rose. Working paper for the Federal Reserve Bank of Chicago, March 2025
This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
More stories like this are available on bloomberg.com/opinion
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Trump says slapping 25% tariffs on Japan, South Korea
Trump says slapping 25% tariffs on Japan, South Korea

Time of India

time29 minutes ago

  • Time of India

Trump says slapping 25% tariffs on Japan, South Korea

Donald Trump has fired another warning shot in his trade war. On Monday, he said he'd slap a 25 percent tariff on goods from Japan and South Korea starting 1 August. He posted letters to both leaders on his own social media platform. In these near-identical letters, Trump argued the trade balance is 'unfortunately, far from Reciprocal.' For weeks, his administration warned that if no deals were reached by 9 July, the tariffs would stick. Now, the clock's ticking again. The new August deadline gives both countries three more weeks to strike a better bargain. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Play War Thunder now for free War Thunder Play Now Undo Europe's last-minute hustle While Japan and South Korea weigh their next move, Europe's scrambling too. The European Union insists progress has been made. European Commission President Ursula von der Leyen spoke with Trump on Sunday and described it as a 'good exchange,' according to an EU spokesman in Brussels. German Chancellor Friedrich Merz also got involved. Over the weekend, he held separate calls with Von der Leyen, and leaders in France and Italy, trying to figure out how to defuse the standoff. Merz's spokesman Stefan Kornelius didn't sugarcoat it: 'Time is running out… it's a complex matrix of factors that need to be taken into account.' Live Events A tariff stick for BRICS Trump's tariffs aren't stopping with Japan and South Korea. He's ready to slap a fresh 10 percent tax on any country 'aligning themselves with the Anti-American policies of BRICS.' No exemptions. That was his message on Truth Social, just as Brazil, Russia, India, China and South Africa were gathering in Rio for their summit. After a few months of fragile truces, the threat of tariffs is back on the table and spooking investors. S&P 500 futures fell 0.5 percent. European stocks were flat. Asian markets dropped 0.7 percent. The dollar, meanwhile, got a boost, up as much as 0.5 percent to a one-week high. Currencies tied to China's orbit — the Aussie and Kiwi dollars — both fell about 1 percent. Shorter-term US Treasuries ticked higher too, as risk appetite slipped. 'A Lot of Congestion' as Deadlines Shift So, where does this all land? Treasury Secretary Scott Bessent admitted the rush of negotiations is 'a lot of congestion going into the home stretch.' He told Fox News that 18 major trading partners are on his radar. Some big deals might land soon, but the sheer volume of talks is slowing everything down. 'If you want to speed things up, have at it,' he said on CNN, daring countries to move quickly. He refused to nail down 1 August as a hard deadline, leaving it hanging in the air. Stocks Shudder and Musk Picks a Fight Wall Street didn't take the uncertainty well. On Monday, the S&P 500 was down 0.9 percent, the Dow off by 526 points, and the Nasdaq slid 1 percent. The selling was broad — three decliners for every gainer on the New York Stock Exchange. Tesla dropped 6.8 percent. Over the weekend, Elon Musk reignited his feud with Trump, threatening to form a third party to protest a Republican spending bill. A falling out between two big egos with real market consequences. A Taste of What's to Come Trump's tariff muscle-flexing doesn't stop at threats. Just last week, he struck a deal with Vietnam that slashes a proposed 46 percent tax down to 20 percent, letting US goods into Vietnam duty-free. Jason Pride at Glenmede reckons this deal might become a blueprint for other countries with big trade surpluses with the US. For now, the market mood is twitchy. Oracle fell 1.2 percent, Chipotle dipped 1.8 percent, and Molina Healthcare trimmed its profit forecast as costs soared. UnitedHealth already sounded the alarm in April for the same reason. Oil, Crypto and the Fed in the Mix In the background, oil prices moved up after OPEC+ agreed to boost production in August by 548,000 barrels a day. US crude rose 1.2 percent. Brent crude gained 1.5 percent. Meanwhile, CoreWeave's nine billion dollar buyout of crypto miner Core Scientific raised eyebrows. Shares in Core Scientific dropped 16.1 percent. CoreWeave slipped 2.5 percent. There's not much else on the economic calendar this week. On Wednesday, the Federal Reserve will release minutes from its last policy meeting. Fed Chair Jerome Powell says he wants to see how tariffs feed into inflation before touching interest rates. Cutting rates could help the economy but risks fuelling inflation if Trump's tariffs push prices higher.

Trump to impose 25% tariff on South Korean, Japanese goods from Aug 1
Trump to impose 25% tariff on South Korean, Japanese goods from Aug 1

Business Standard

time34 minutes ago

  • Business Standard

Trump to impose 25% tariff on South Korean, Japanese goods from Aug 1

US President Donald Trump on Monday announced a 25 per cent tariff on all goods imported from South Korea and Japan, effective August 1, 2025. The move is aimed at addressing what the White House terms as 'longterm, and very persistent, trade deficits' caused by what it calls unfair trade practices by South Korea. In a letter dated July 7, 2025, addressed to South Korean President Lee Jae-myung, Trump stated: 'It is a Great Honour for me to send you this letter in that it demonstrates the strength and commitment of our Trading Relationship, and the fact that the United States of America has agreed to continue working with Korea, despite having a significant Trade Deficit with your great Country.' Trump also highlighted that future trade between the two nations must be 'more balanced, and fair, TRADE,' adding, 'We invite you to participate in the extraordinary Economy of the United States, the Number One Market in the World, by far.' The letter further noted that Korean goods sent into the US would face a 25 per cent tariff, separate from existing sectoral tariffs. Goods transshipped to avoid the higher tariff 'will be subject to that higher tariff'. 'Please understand that the 25 per cent number is far less than what is needed to eliminate the trade deficit disparity we have with your country,' explained Trump. He added, 'There will be no tariff if Korea, or companies within your country, decide to build or manufacture product within the United States and, in fact, we will do everything possible to get approvals quickly, professionally, and routinely — in other words, in a matter of weeks.' The letter also included a warning against retaliation: 'If for any reason you decide to raise your tariffs, then, whatever the number you choose to raise them by, will be added onto the 25 per cent that we charge.' Meanwhile, the same measures are being applied to Japan, according to media reports. Trump concluded in his letter, 'This (trade) deficit is a major threat to our economy and, indeed, our national security!'

25% is far less: Trump sends tariff letters to Japan, Korea with warning
25% is far less: Trump sends tariff letters to Japan, Korea with warning

India Today

time37 minutes ago

  • India Today

25% is far less: Trump sends tariff letters to Japan, Korea with warning

US President Donald Trump on Monday announced 25 per cent tariffs on imports from South Korea and Japan, stressing that the rates are"far less" than what is needed to eliminate the "trade deficit" between the US and them. The tariff slabs will come into effect from August 1, Trump announced on his Truth Social platform, rolling out letters with Korea and Japan being among the first ones to receive shared the screengrabs of the letters he dispatched to Japanese Prime Minister Ishiba Shigeru and South Korean President Lee Jae-myung apprising them of his move to impose the new set of tariff rates. This is a developing story. It will be updated.- EndsMust Watch

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store