The Bank of New York Mellon strengthens business ties with Circle

US legislators are working on Stable Coin legislation to plan how to regulate these Tokens, and the clarity of regulation may open the door for banks to issue Stable Coin themselves.

Author: Yueqi Yang

Compilation: Block unicorn

As banks warm up to cryptocurrencies, the oldest bank in the United States, the Bank of New York Mellon (BNY), is expanding its services to the stablecoin giant Circle. This is the latest sign that in a more friendly regulatory environment, U.S. banks are relaxing their entry into the cryptocurrency industry.

Insiders said that the bank will allow some customers to remit or receive money from Circle through BNY for the purchase or sale of Circle's Stable Coin. Previously, Circle's customers had to use small banks in the United States to remit money to Circle, which may have limited the scale of development for this Stable Coin company.

This new arrangement will facilitate the creation and redemption of Circle Stable Coin, helping Circle, headquartered in New York, promote the more widespread adoption of its USD-pegged Stable Coin by other traditional financial institutions. Supporters of Stable Coin argue that, compared to traditional payment methods, Stable Coin is a faster and cheaper global remittance method that financial institutions can use for capital markets and cross-border transactions.

Two companies said in a joint statement: 'BNY and Circle will continue to work together to bridge the gap between traditional finance and digital finance, and explore how to deepen our relationship for the benefit of the financial markets.'

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

The partnership with BNY is noteworthy because the company is a global systemically important bank (G-SIB), a regulatory designation that subjects it to particularly stringent supervision. Partnering with large U.S. banks like BNY is one way that Circle distinguishes itself from competitors such as Tether. According to previous disclosures and media reports, Tether's banking partners include small institutions based in the Bahamas: Capital Union Bank, Britannia Bank & Trust, and Deltec Bank & Trust.

Circle's relationship with BNY is something Circle can boast about to help traditional financial companies adopt its Stable Coin more confidently.

Stable Coin issuance relies heavily on traditional banks behind the scenes, storing cash and government debt to support Stable Coin, and processing funds for customers to purchase or redeem Stable Coin. Banking regulators closely monitor services related to banks and Stable Coin out of safety and soundness concerns, fearing they may pose risks to the entire banking system, such as holders of Stable Coin redeeming a large amount of Tokens at once.

President Donald Trump has promised the cryptocurrency industry that federal banking regulators will allow banks to accept more crypto companies as customers. As top federal banking regulators revise or issue new friendly business guidelines, BNY, which is regulated by the Fed and the New York State Department of Financial Services, is not the only bank to warm up to digital assets.

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

During the regional banking crisis in 2023, Circle lost three important banking partners, Silvergate Bank, Signature Bank, and Silicon Valley Bank, all of which had collapsed at the time. More broadly, banks became more cautious about the potential risks of cooperating with crypto companies after the collapse of well-known companies like FTX.

Since the closure of these crypto-friendly banks, Circle has been working to rebuild its banking relationships. Circle has transferred the $3.3 billion funds from the collapsed Silicon Valley bank to BNY, and stored most of its cash and government bonds supporting Stable Coin in the bank.

However, Circle also holds some cash in smaller banks, such as regional bank Customers Bank, to process payments for US customers. Customers Bank has limitations in accepting crypto-related clients, partly to avoid a large proportion of deposits from crypto companies. The Federal Reserve Board took enforcement action against the bank last year due to compliance deficiencies in its crypto customer services.

In Asia, Circle collaborates with Standard Chartered Bank to enable customers to pay and receive funds related to buying and selling Circle Stable Coin.

Some sources have indicated that BNY has obtained approval from the New York State Department of Financial Services to provide Circle with a broader range of payment services, the department responsible for regulating this New York State chartered bank.

By serving Circle, BNY may also attract more crypto-related deposits. Sources previously stated that the company has been discussing providing banking services with more crypto companies, but with caution, only partnering with the most secure ones.

BNY's expanded partnership with Circle indicates that large banks can adapt to the growing interest in stablecoins. However, if consumers and businesses widely adopt stablecoins, these tokens may also compete with customer cash, which is originally held as bank deposits.

US legislators are working on Stable Coin legislation to plan how to regulate these Tokens, and the clarity of regulation may open the door for banks to issue Stable Coins themselves. Brian Moynihan, CEO of the second largest bank in the US, Bank of America, stated in late February that if the legislation legalizes it, Bank of America may offer its own Stable Coin.