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Erebor Bank Secures Preliminary Regulatory Approval
Named after the storied mountain in J.R.R. Tolkien’s “The Hobbit,” where dwarves hoarded their treasure before it fell to a dragon, the new bank, Erebor, received preliminary regulatory approval on Wednesday.
This expedited approval is poised to invigorate a plethora of companies and startups aspiring to establish banks that cater to clients often marginalized by conventional financial institutions.
This trend is particularly relevant for technology and cryptocurrency firms, buoyed by the Trump administration’s pledge for enhanced regulatory transparency.
According to insiders, Luckey and his team intend to concentrate Erebor’s operations on providing loans and deposit services to customers akin to those of Silicon Valley Bank.
Target clientele may include companies operating in cryptocurrencies, artificial intelligence, as well as the defense and manufacturing sectors, along with investment funds and ultra-high-net-worth individuals possessing cryptocurrency holdings, as delineated in the bank’s charter application.
The bank’s ambition includes constructing an infrastructure that facilitates payments via stablecoins—cryptocurrencies pegged to traditional fiat currencies such as the U.S. dollar. Notably, it does not plan to issue its own stablecoins.
This focus on the innovation economy and stablecoins positions Erebor amongst a cadre of new entrants in the financial realm—cryptocurrency and adjacent firms aiming to revolutionize the financial system from the inside out, as articulated by one of the bank’s board members.
The Trump administration has expressed support for the cryptocurrency sector, following significant financial contributions to Trump’s campaign by crypto advocates. On Wednesday, the head of the Office of the Comptroller of the Currency noted Erebor’s preliminary approval as indicative of the agency’s shifting perspective.
“Today’s decision is…evidence that under my leadership, the OCC does not impose blanket obstacles for banks wishing to engage in digital asset activities,” asserted Comptroller of the Currency Jonathan Gould.
Having raised $275 million, Erebor boasts a constellation of investors from Peter Thiel’s network, including Palmer Luckey, 8VC led by Joe Lonsdale, and Thiel’s Founders Fund.
Additional backers include crypto-focused Haun Ventures, Bain Capital Crypto, Lux Capital, and 776, a venture capital firm founded by Alexis Ohanian, co-founder of Reddit.
In an effort to eschew the pitfalls that led to Silicon Valley Bank’s demise, Erebor’s founders are adopting a prudent approach. They plan to mitigate risks associated with interest-rate volatility by investing in short-term Treasury securities and highly liquid government bonds.
Moreover, they aim to maintain a conservative loan-to-deposit ratio of 50% and will forgo extravagant perks, choosing substance over superficiality.
“We’re building a bank, not a social club,” Luckey remarked.
While Luckey will not assume an operational role in the new bank, he will serve on its board as the principal shareholder.
Luckey garnered attention as the co-founder of Oculus, the virtual reality headset manufacturer acquired by Facebook in 2014. He was among the few vocal Trump supporters within Silicon Valley during the 2016 election cycle, a position that purportedly led to his departure from Facebook. He has also been a notable contributor to Trump’s 2024 campaign.
The preliminary approval for Erebor signifies a notable departure in regulators’ approach to the bank-chartering process, as per legal advisors. Historically, achieving preliminary approval was a protracted endeavor that nearly assured final sanction.
Currently, the OCC aims to provide conditional approvals within 120 days, allowing applicants to subsequently raise capital and establish risk management systems requisite for final approval, according to David Portilla, a partner at Davis Polk & Wardwell.
“The objective is to enable prospective banks to initiate their operations rather than hinder them at the outset,” Portilla explained.
“This will encourage the establishment of new banks,” an outcome Trump officials identify as beneficial for competition and the economy.
The accelerated approval process has prompted scrutiny from Senator Elizabeth Warren (D., Mass.).
“President Trump’s billionaire associates, Peter Thiel and Palmer Luckey, have just secured OCC authorization for a new bank tailored to the financial desires of Silicon Valley elites,” Warren stated.
“The fast-tracked approval of this precarious venture risks creating another bailout funded by the American taxpayer, potentially destabilizing our banking framework.”
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