Cryptocurrency exchange FTX reportedly asked local banks to put their money in the exchange for a respectable return, a Wall Street Journal (WSJ) article explained.
The article explained that the banks turned down the offer.
The article did not name a specific bank, but said the WSJ spoke to a partner at one of the banks that turned down the offer.
“Effectively, they were looking for funding,” the banker said in the article.
The WSJ article added: “Starting late last year, FTX started calling Bahamian banks with an unusual offer: Deposit your cash in FTX’s crypto-lending platform in exchange for interest of as much as 12 percent, according to bankers.”
Chief Executive Officer of Fidelity Bank Gowon Bowe told Guardian Business that a deal like the one being offered by FTX would have been a “non-starter” for many local commercial banks.
FTX collapsed on itself after facing a liquidity crunch connected to its own coin two weeks ago.
“A commercial bank manages liquidity but with low risk, and crypto (even stable coins) doesn’t fit that profile,” said Bowe.
“It would be nothing domestic banks would consider, as there would be foreign exchange control management as well, as this would need to be in USD.
“I imagine the thrust was that the exchange was seeking to lure bank depositors to put money in the exchange for higher returns. But it’s the old adage, the higher the reward, the higher the risk.”
He explained that commercial banks would be willing to take on risk that can be managed over a long term, but not “price risk” that is more volatile.
He said there might be banks that would consider this kind of risk, but likely a large “multi-national bank, with an investment banking arm, along with retail banking arm, may venture into that space but it would only use shareholder equity and not depositor funds”.
FTX is now under investigation by the Securities Commission of The Bahamas, the US Securities and Exchange Commission and the US Department of Justice.
The company filed for bankruptcy protection two weeks ago.