US Digital Asset Firm Acquires Bank In $50m Deal

February 6, 2023
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LevelField Financial, a digital asset trading platform, has agreed to acquire Illinois-based Burling Bank as part of its mission to gain regulatory approval for banking activities.

LevelField Financial, a digital asset trading platform, has agreed to acquire Illinois-based Burling Bank as part of its mission to gain regulatory approval for banking activities.

In a statement, LevelField Financial said the acquisition will help it to become the first state-chartered, federally-insured bank to offer banking and digital asset services in a single platform.

The deal is expected to close later this year, and although financial terms were not disclosed, VIXIO understands that the acquisition is valued at $50m.

LevelField said the acquisition completes the foundation of its core business strategy, subject to the necessary approvals of the US regulatory authorities.

Under the acquisition plan, LevelField will incorporate Burling Bank's existing business, which is covered by the Federal Deposit Insurance Corporation (FDIC), and Burling’s senior management team will join the LevelField leadership.

Gene Grant, CEO of LevelField, said that Burling Bank had “exceeded expectations” as a potential takeover candidate.

"We conducted a broad review of banks in the US to find the ideal institution with both an existing business and a management team who are aligned with our vision,” he said.

"Together we intend to deliver fantastic customer service and well-designed products to customers who have an interest in accessing the digital asset class through a traditional bank."

Michael Busch, president and CEO of Burling Bank, said the acquisition will allow the bank to expand its customer base geographically and meet demand for digital asset-based services.

“Through the carefully developed suite of products, we can address our customers' interests in digital assets and introduce them to LevelField's safe, simple, and secure platform," he said.

Founded in 1989, Burling Bank is an independent community bank headquartered in Chicago that provides personal and business banking services.

With the necessary regulatory permissions, LevelField said it will also offer payments and financing solutions.

A tough sell for US regulators

LevelField is not the only digital asset firm eyeing an entry to the US banking and payments systems.

Last week, VIXIO reported on the Federal Reserve Board (FRB) unanimously rejecting the Wyoming-based Custodia Bank's application to become a member of the Federal Reserve System.

A separate application to open a master account at the Federal Reserve was also rejected after a two year wait for a decision.

Speaking to VIXIO, LevelField CEO Grant was unfazed by Custodia Bank’s rejected applications.

“Given that Custodia Bank’s business plan included the issuance and holding of cryptocurrency as principal, the bank would be deemed to be seeking to operate in a manner that is not consistent with safe and sound banking practices,” he said.

“Based upon that categorisation alone, the Federal Reserve had no choice but to reject the application.”

Grant added that the FRB’s reference to Custodia’s lack of anti-money laundering and counter terrorist financing (AML/CTF) controls demonstrated insufficient planning on Custodia’s part.

“Even with the best of intentions, people not well versed in understanding both the complexity and extent of risk management controls and systems underestimate the effort and scope necessary to sufficiently address risks within the highly regulated US banking system,” he said.

BNY Mellon and 'favouritism' accusations

One US bank that is already offering crypto-asset-based services is BNY Mellon, which launched its Digital Asset Custody platform in November last year.

In a statement made shortly before launch, BNY Mellon said the platform will allow institutional investors in the U.S. to hold and transfer bitcoin and ethereum.

During its legal battle to force a decision from the FRB regarding the master account, Custodia accused the regulator of showing favouritism towards BNY Mellon, the US’ oldest bank.

“If holding custody of digital assets poses ‘novel, precedent-setting risk’ to the US financial system, as the Defendants suggest in their motions, then the Board could have — indeed, should have — prevented BNY from engaging in such activities, especially since BNY is a global systemically important bank,” said Custodia.

“Instead, this recent development aligns precisely with the allegations of favoritism raised by Custodia’s Complaint.”

However, one key difference between Custodia and BNY Mellon is that deposits at BNY Mellon are FDIC-insured, whereas at Custodia they are not.

Although FDIC insurance is not essential for a bank to open a master account at the Fed, it results in a much lower level of scrutiny being applied during the application process.

According to US law firm Perkins Coie, state-chartered, non-FDIC-insured banks such as Custodia face the highest level of scrutiny when applying for a master account.

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