BNY Mellon and Circle strengthen business relationship

Author of the article:Yueqi YangArticle compilation：Block unicorn

As banks’ attitude towards cryptocurrencies warms, the oldest bank in the United States, Bank of New York Mellon (BNY), is expanding its support for stablecoin giant Circle The bank will allow some customers to send or receive money to or from Circle through BNY to buy or sell Circle's stablecoins, the people said. Previously, Circle's customers had to use small U.S. banks to send money to Circle, which could limit the scale of the stablecoin company. The new arrangement, which facilitates the creation and redemption of Circle's stablecoins, could help New York-based Circle push for wider adoption of its dollar-pegged stablecoins by other traditional financial institutions. Stablecoin proponents say they are a faster and cheaper way to send money globally than traditional payment methods, and financial institutions can use stablecoins for capital markets and cross-border transactions.

"BNY and Circle will continue to work to bridge the gap between traditional and digital finance and explore how to deepen our relationship to benefit financial markets," the two companies said in a joint statement.

The changes will help make Circle more attractive to investors ahead of a possible initial public offering (IPO). Circle filed confidential IPO paperwork last year. The company is already the world's second-largest stablecoin issuer, with $58 billion in circulation for its most popular currency, USDC. Tether, with $143 billion in circulation, ranks first.

The partnership with BNY is notable because the company is a global systemically important bank (G-SIB), a regulatory designation that subjects it to particularly strict supervision. Using a large U.S. bank like BNY is one way Circle is differentiating itself from competitors like Tether. Tether’s banking partners include smaller Bahamas-based institutions Capital Union Bank, Britannia Bank & Trust and Deltec Bank & Trust, according to previous disclosures and media reports. Circle’s relationship with BNY is something Circle can tout to help traditional financial firms feel more comfortable adopting its stablecoins. Stablecoin issuers rely heavily on traditional banks behind the scenes, both to store the cash and government debt that backs stablecoins and to process funds for customers to buy or cash out stablecoins. Bank regulators are keeping a close eye on banks’ stablecoin-related services for safety and soundness reasons, fearing they pose risks to the banking system as a whole, such as if stablecoin holders cash out large amounts of tokens at once.

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For example, last week, the Office of the Comptroller of the Currency, one of the three major federal banking regulators in the United States, announced that it would no longer require national banks to seek permission before conducting crypto activities, reversing the Biden administration's guidance.

During the regional banking crisis in 2023, Circle lost three important banking partners, Silvergate Bank, Signature Bank, and Silicon Valley Bank, when they all collapsed. More broadly, banks have become more wary of the potential risks of working with crypto companies after the collapse of high-profile companies such as FTX.

Since the closure of these crypto-friendly banks, Circle has been working to rebuild its banking relationships. Circle transferred $3.3 billion of funds from the failed Silicon Valley Bank to BNY, and stores most of its cash and Treasury bills backing the stablecoin at the bank.

But Circle also holds some of its cash at smaller banks, such as regional bank Customers Bank, to process payments from U.S. customers. Customers Bank is limited in its ability to take on crypto-related clients, in part to avoid having a disproportionate share of its deposits come from crypto companies. The Federal Reserve Board of Governors also took enforcement action against the bank last year for compliance deficiencies in its crypto-client services.

In Asia, Circle has partnered with Standard Chartered Bank to enable customers to pay and receive funds related to buying and selling Circle stablecoins.

Some people familiar with the matter said BNY has approval from the New York State Department of Financial Services, which regulates the New York State-chartered bank, to provide Circle with a wider range of payment services.

By servicing Circle, BNY could also attract more crypto-related deposits. The company has been in discussions with more crypto firms about offering banking services, but has been cautious, working only with the safest, people familiar with the matter have previously said.

BNY’s expanded partnership with Circle shows that big banks could tap into growing interest in stablecoins. But if consumers and businesses adopt stablecoins on a large scale, the tokens could also compete with customer cash, which would otherwise be held as bank deposits.

U.S. lawmakers are working on stablecoin legislation to map out how to regulate the tokens, and regulatory clarity could open the door for banks to issue stablecoins themselves. Brian Moynihan, CEO of Bank of America, the second-largest U.S. bank, said in late February that the bank might offer its own stablecoin if legislation made it legal.