Metropolitan Bank Wants to Get More of Crypto
New York-based Metropolitan Commercial Bank is desiring to handle much larger cryptocurrency transactions although the financial institution is already processing such dealings for its clients.
While the majority of American banks consider cryptocurrency as an outcast, the Metropolitan, which asserts itself as the entrepreneurial bank, describes virtual coins as pioneers.
“We’re certainly very interested in growing this vertical,” Nick Rosenberg said, referring to the community bank’s crypto clientele. “We’ve learned that it’s a serious industry. There are some very smart people involved. There are some very interesting ideas coming out that could really change the way people do business.”
Metropolitan is one of the few financial institutions that has been pursuing deposits from crypto companies including some exchanges, hedge funds, and other crypto investors. For these firms, it is easier for them to swiftly transfer their money to those exchanges.
In the first quarter, Metropolitan informed investors that cash management and foreign exchange conversion fees from cryptocurrency clients amounted to $3.4 million. This helped drive an over 300 percent surge from a year ago in the bank’s total non-interest income to $5.4 million, the bank said in its regulatory filing.
Data from the Federal Deposit Insurance Corp. shows that triple-digit growth is stellar for the American banking industry, in which non-interest income for all institutions climbed 7.9 percent during the same period.
There are only a handful of bitcoin-friendly banks such as Metropolitan despite the huge demand from crypto firms to gain access to fiat liquidity and other services.
“It’s extremely challenging. The legalized cannabis industry are having a much easier time than our cryptocurrency clients,” Joe Ciccolo, president of compliance service provider BitAML Inc., said.
Amid the perceived challenges, Metropolitan is having the best time to cash in on banking crypto companies.
“I think Metropolitan was intrigued by the structure, more than just bitcoin, but the structure of that currency market in general. The technology behind it is what has really been intriguing to this management team,” Collyn Gilbert, analyst and managing director at the investment banking firm Keefe, Bruyette & Woods, said.
“There’s a dual benefit for those banks that are willing to step out there. Not only does it present a new book of business their competitors don’t have, so they can grow their customer base and reach, at the same time, it also gives them a sneak peek at some of the technology that might be impacting their world in traditional finance,” Ciccolo stated.
Metropolitan is welcoming with open arms the crypto arena and its accompanying risks such as the regulatory risk.
Existing anti-money-laundering regulations mandate banks to identify their customers and their customers’ customers, including the flow of funds.
The anonymous nature of blockchain makes it difficult for authorities to determine the two parties of a transaction, although the public ones can assist banks and law enforcement trail the movement of money.
“It’s very difficult for a bank to maintain a pro-bitcoin stance. If you have a new officer come into a financial institution, they may take the opportunity to put a different stance on high-risk customers such as crypto companies,” Ciccolo noted.
In terms of risk management, Rosenberg cited two keys to catering to crypto clients. First, one has to been extremely selective about choosing clients to work with, which, like the bank, should strictly comply with regulations. Second, these clients should keep an open dialogue with regulators.
“Law enforcement departments, in general, are understanding that cryptocurrency is not all about illicit payments, it has a value and it has a legitimate purpose. It’s just a matter of spending time explaining it, understanding what their concerns are, making them feel comfortable that we are mitigating those concerns, and that we have the right controls in place,” he said.
Metropolitan also cited the need to cushion the blow against the volatility of cryptocurrency. The bank only manages fiat currency not the digital currency itself. It told the Securities and Exchange Commission (SEC) the settlement accounts it maintains for exchanges amounted to $281.2 million as of March 31, which represents 17.4 percent of its total deposits.
The bank, however, stressed, it is not using these accounts to finance long-term assets including mortgages.
“They do not utilize a lot of these deposits in their everyday operations, just because they do know there is significant volatility there,” Gilbert said.
Metropolitan held an additional $100.8 million in corporate accounts for crypto companies. That’s 6.2 percent of total deposits as of end-March this year.
Moving forward, Metropolitan hopes to be one of the leading banks catering to the emerging token economy.
“We’re looking at this market as a new asset class,” Hingher said. “We’d like to do more for the new asset class,” Kyle Hingher, the bank’s director of new products, said. “If something is really going to succeed, it’s going to require a banking partnership.”
Hingher noted the opportunity lies on combining technologies and that potential for something brand new “which could be earth-shattering and change everything. The potential for that, I think, outweighs all the crash-and-burn scenarios,” he added.