WASHINGTON – In a move that has sent shockwaves through the financial community, the Federal Deposit Insurance Corporation (FDIC) has approved a deposit insurance application for Erebor Bank, N.A., a newly chartered national bank to be headquartered in Columbus, Ohio.
The FDIC’s Board of Directors made the decision after evaluating Erebor Bank’s application under a statutory framework of seven factors, including the financial history and condition of the institution, the adequacy of the institution’s capital structure, and the general character and fitness of the management of the institution.
According to the FDIC, Erebor Bank’s proposed business model will focus on providing deposit and lending products to businesses and individuals in the technology, payment systems, investment, and defense industries, including virtual currency market participants.
FDIC staff found that Erebor Bank satisfied the statutory factors for approval, subject to certain conditions. Among other conditions, Erebor Bank will be required to implement protocols to comply with the FDIC’s regulations regarding processing of deposit accounts in the event of a bank failure, to maintain a minimum 12 percent tier 1 leverage ratio during its first three years of operation, and to exercise its rights under its Capital Call Agreement to obtain at minimum the amount of capital necessary to be considered “well capitalized.”
The FDIC Board’s approval order expires if Erebor Bank is not established within 12 months, unless extended by the FDIC.
The approval of Erebor Bank’s deposit insurance application is seen as a major coup for the financial industry, which has been grappling with the challenges of regulating virtual currency and other emerging technologies.
However, critics have raised concerns about the potential risks associated with the approval, including the potential for Erebor Bank to engage in high-risk lending practices and to fail to properly regulate its virtual currency operations.
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