Economy

TOKYO (Reuters) -Japan’s government picked academic Kazuo Ueda as new central bank chief on expectations he can help keep inflation on target and sustain economic growth and wage hikes, finance minister Shunichi Suzuki said on Friday.”We fully paid attention to the potential impact on financial market in proceeding with consideration,” Suzuki told reporters.”We also took into account the importance of keeping close coordination with top officials of major central banks as well as the ability to send and receives high-quality messages to market players within and outside Japan,” Suzuki said.The cabinet judged that Ueda, who is a well-known economics academic, was the most appropriate candidate to take over incumbent Haruhiko Kuroda, due to his deep insight on monetary affairs in terms of both theory and practice, he added.The government picked BOJ executive Shinichi Uchida and former banking watchdog Ryozo Himino as the two deputy governors for their rich experience and knowledge of monetary policy and financial affairs.”I believe the nominations were made to demonstrate their comprehensive ability as one team,” Suzuki said.Suzuki also told reporters after a cabinet meeting Japan is coordinating with other countries on the agenda for when the Group of Seven financial leaders’ meeting takes place later this month. More

Consumer debt across all categories totaled $16.9 trillion, up about $1.3 trillion from a year ago as balances rose across all major categories.
Mortgages, auto loans and credit card delinquencies all increased, though to still-low levels.
The rise in balances came amid an aggressive rate-hiking campaign by the Fed.

Consumer debt hit a fresh record at the end of 2022 while delinquency rates rose for several types of loans, the New York Federal Reserve reported Thursday.
Debt across all categories totaled $16.9 trillion, up about $1.3 trillion from a year ago, as balances rose across all major categories.

Despite a decline in originations, mortgage balances increased to $11.9 trillion, up about $250 billion from the third quarter and about $1 trillion from a year ago. Originations for new home loans and refinancings fell to $498 billion, less than half where they were for Q4 in 2021 and a drop of about $135 billion from the third quarter.
Mortgage loans considered in “serious delinquency” of 90 days or more rose to a rate of 0.57%, still low but nearly double where they were from the year prior. Auto loan debt delinquencies rose 0.6 percentage point to 2.2%, while credit card debt jumped 0.8 percentage point to 4%.

A bank employee counts U.S. dollar notes at a Kasikornbank in Bangkok, Thailand, January 26, 2023. 
Athit Perawongmetha | Reuters

“Credit card balances grew robustly in the fourth quarter, while mortgage and auto loan balances grew at a more moderate pace, reflecting activity consistent with pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed.
“Although historically low unemployment has kept consumers’ financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers’ ability to repay their debts,” he added.
The rise in balances came amid an aggressive rate-hiking campaign from the Fed as it battled inflation running near its highest levels in more than 41 years.

The Fed raised its benchmark rate seven times during the year, adding another increase in January that took the overnight borrowing rate to a target range of 4.5%-4.75%. Included in that series were four consecutive increases of three-quarters of a percentage point, boosting rates for multiple consumer debt instruments such as credit cards, mortgages and auto loans.
Student loan debt also increased for the month, after staying flat during much of the pandemic amid government-backed amnesty for borrowers. The total balance hit $1.6 trillion in the fourth quarter.
Auto loan debt edged higher, to $1.55 trillion, while credit card balances rose to just shy of $1 trillion.
The explosion in consumer debt came amid an ongoing increase in federal government borrowing. Total U.S. government debt now stands near $31.5 trillion, up from $29.6 trillion at the end of 2022, according to Treasury Department data.

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TOKYO (Reuters) -For Prime Minister Fumio Kishida, Japan’s next central bank chief had to symbolise a departure from the unconventional policies of his predecessor Shinzo Abe – but without angering pro-growth lawmakers of Abe’s powerful political faction.The tricky task of steering the Bank of Japan (BOJ) out of years of ultra-low interest rates without upending markets required the skill to read markets and clearly communicate policy intentions, both domestically and internationally.Kazuo Ueda, a 71-year-old university professor who has kept a low profile despite strong credentials as a monetary policy expert, ticked some important boxes.He was branded neither an explicit dove nor hawk. While he was not even on the list of dark horse candidates floated by the media, Ueda was well known in global central bank circles.Having an academic helm the BOJ is unprecedented in Japan, where the job traditionally rotates between a central banker and an official from the Ministry of Finance (MOF).But the idea found traction in Kishida’s administration, particularly as attempts to convince incumbent deputy governor Masayoshi Amamiya, considered the top contender for the job, failed.The account of how Kishida chose the new BOJ leadership is based on interviews and conversations with 15 sources, including former and incumbent central bank and government officials, ruling camp lawmakers, aides of Kishida, private-sector bankers and analysts closely watching Japanese politics and policy.Most of them spoke on condition of anonymity as they were not authorised to speak publicly, or declined to comment on record due to the sensitivity of the matter.The search for a new chief began mid-last year, when Kishida and his aides drafted a list including a range of candidates from the BOJ, MOF, private sector and academia.Other academics in the list included Columbia University professor Takatoshi Ito, a close associate of Kuroda, and University of Tokyo academic Tsutomu Watanabe, known for his research on Japan’s deflation.The BOJ lobbied hard for a career central banker to take the job after Kuroda, a former MOF executive, presided for a rare second, five-year term that ends in April.The bank’s preferred choices were incumbent deputy governor Amamiya, as well as former deputies Hiroshi Nakaso and Hirohide Yamaguchi, given their deep knowledge on monetary policy.Many finance ministry officials favoured Amamiya, who for decades has cultivated good ties with the government.But Amamiya had made clear to associates from the outset he had no intention of taking the job, on the view he would be not be able to dismantle the stimulus he helped Kuroda create, sources say.”If he becomes governor, he would have had to spend five years contradicting what he said in the past decade,” said a former MOF executive who knows Amamiya well. “That’s quite hard.”A commercial bank executive who met him late last year recalled how Amamiya, when asked, flatly denied the chance of becoming governor. “It struck me how he very strongly ruled out the possibility,” the executive said.Amamiya, in fact, talked about how the BOJ needed to be like the U.S. Federal Reserve, where academics with monetary policy expertise take the helm and guide policy with support from staff, say people who had interactions with him.Kishida’s administration also wanted someone who would signal a departure from Kuroda’s monetary experiment that was a key part of his predecessor’s “Abenomics” stimulus policies, and became deeply unpopular with the public for failing to broadly distribute wealth.But choosing a more hawkish policymaker like Nakaso or Yamaguchi would have drawn discontent from reflationist-minded lawmakers from Abe’s powerful faction within the ruling Liberal Democratic Party (LDP).That was too risky for Kishida, whose own faction is a minority and relies on support from more powerful groups within the LDP.The choice of Kuroda’s successor has been closely watched by investors and the wider public as an indication of how soon the BOJ will shift away from extremely low interest rates, a transition that could have huge ramifications for global financial markets.”The prime minister probably wants a fresh face. But he also needs to avoid giving the impression that there will be a big change to ultra-loose policy,” ruling party heavyweight Akira Amari told Reuters days before news of Ueda’s choice broke.When asked in parliament on Wednesday by an opposition lawmaker, Kishida said he could not comment on how he reached the decision, and when he finalised it. He also declined to comment on whether the administration sounded out Amamiya for the job.Kishida, however, said he had “exchanged views” with many people since last year in selecting the new BOJ leadership.The BOJ declined to comment for this story, including on questions about Amamiya’s consideration of the role. Japan’s top government spokesperson Hirokazu Matsuno declined to comment, when asked on Thursday whether the government sounded out Amamiya for the top BOJ job.Matsuno said he hoped the BOJ works closely with the government and guides monetary policy flexibly, when asked whether Ueda’s appointment could lead to a retreat from Abenomics.POLITICAL BALANCING ACTThanks in part to Amamiya’s recommendation, Ueda remained on a short list and eventually became the top choice in a process that was disclosed to only a handful of people.On Feb. 8, Kishida met party heavyweights Toshimitsu Motegi and Taro Aso for dinner at a high-end Japanese restaurant near the premier’s official Tokyo residence.While Kishida did not reveal the name of his preferred choice, the BOJ succession was among topics discussed, said two sources with knowledge of the matter.”The government needed someone who understood monetary policy both in terms of practice and theory, and can interact with an inner circle of top central bankers,” one of the people said. “That turned out to be Mr. Ueda.”The fact Ueda, who holds a PhD from the Massachusetts Institute of Technology and studied under prominent central banker Stanley Fischer, kept a low political profile and avoided being branded as someone in favour or against Abenomics, served him well.While he warned of the rising cost of the BOJ’s yield control policy, Ueda has called for the need to keep monetary policy loose to ensure Japan stably achieves the bank’s 2% inflation target.The view meshed with that of Kishida’s administration, which wants the BOJ to address the side-effects of yield curve control but not rush into tightening monetary policy.”Amamiya was labelled as close to Abenomics. By contrast, Ueda has a fresh image and gives the BOJ a freer hand in shifting away from Abenomics,” said a ruling party heavyweight belonging to Abe’s faction.Political commentator Atsuo Ito sees Kishida’s decision as symbolic of the way his administration gives due consideration to what lawmakers of Abe’s pro-growth faction think.”For Kishida, this choice was about getting the political balance right,” he said.NEW POWER DYNAMICSKishida’s choice was welcomed by many BOJ policymakers, as Ueda was no stranger to the institution and a quiet cheer-leader of its pre-Kuroda conventional policies.During his seven-year stint as a BOJ board member, Ueda worked closely with Amamiya inventing new tools to combat a banking crisis and debilitating deflation.Even after retiring as board member, Ueda kept close ties with the BOJ by serving as an adviser at its think tank and attending various international central bank forums.”He’s something of a legend in Japanese central banking,” said a BOJ official of Ueda. “He stood out as someone special among the many members who served at its board.”Knowing they would have little influence on Kishida’s final pick, BOJ officials had a backup plan in case the new governor was someone from outside the institution.That was to re-appoint BOJ executive director Shinichi Uchida for a rare, second four-year term in April last year to ensure he would slide into the deputy governor post.That would provide the new leadership with the kind of knowledge of the BOJ’s inner bureaucracy for which Amamiya was known.Together with Ryozo Himino, the other nominated deputy and a former banking regulator, the three should have the right combination of theoretical, industry and technocratic expertise to unwind Kuroda-era policy, say sources familiar with the BOJ’s thinking.However, none of the three are seen as having the political savviness of Amamiya, who could read the political mood and work behind the scenes to sound out the administration’s policy views.That could work as a disadvantage if the economy takes a turn for the worse and the BOJ again comes under political heat.Already, Japan faces headwinds from slowing global growth, casting doubt on whether wages will rise enough to keep inflation sustainably around the BOJ’s 2% target and justify phasing out stimulus.”If the BOJ actually moves toward normalising monetary policy, there will surely be some political tension because the reflationist-minded lawmakers will push back,” said Atsuo Ito.”A policy reversal will probably take quite a long time.” More

HOUSTON (Reuters) -Russia’s decision to cut crude oil production by 500,000 barrels per day reflects its inability to sell all of its oil, Ben Harris, a U.S. Treasury Department Assistant Secretary, said on Thursday. Russia’s Deputy Prime Minister Alexander Novak last week said it would voluntarily cut production beginning next month following the start of Western price caps on Russian oil and oil products on Feb. 5. The move to cut around 5% of output temporarily pushed up global prices.”They cut back on production because they just couldn’t sell it (the oil), not because they wanted to weaponize oil and refined products,” Harris said in remarks at the Argus Americas Crude Summit.The cut follows embargoes and sanctions, including an unprecedented $60 a barrel price cap on its crude, by Western countries to punish Moscow for its invasion of Ukraine. Poland, Latvia, Lithuania and Estonia have pushed for lowering the crude oil cap. Russia’s monthly budget revenues from oil and gas fell 46% in January to their lowest level since August 2020 under the impact of Western sanctions on its most lucrative export, according to finance ministry data. The cap sought to maintain market stability and to drive down Russian revenue, both of which have been achieved, Harris said.There have been no American companies involved in trading Russian oil above the price cap, he said. ‘WAIT AND SEE’It is unclear whether Russia will shut in crude because of the logistical difficulties of placing crude at the cap, or if the production cut lasts, Michael Cohen, BP’s chief U.S. economist, said during the conference. Colin Parfitt, vice president of midstream for Chevron Corp (NYSE:CVX), also said it was not yet clear whether the output cut is major. The market is in a “wait-and-see” approach to the announcement, Parfitt told Reuters on the sidelines of the conference. Russia is still selling discounted barrels of crude to purchasers including China and India. Purchasing those Russian barrels is “extremely lucrative” for a large part of the world, said Mercuria President Daniel Jaeggi at the conference.However, Goldman Sachs (NYSE:GS) said in a note earlier this week that Moscow’s trade partners have increasingly paid more for Russian crude than quoted prices suggest, cushioning Russia from the impact of Western sanctions. Phillips 66 (NYSE:PSX)’s Chief Executive Mark Lashier said the company’s base assumption is that Russia’s crude and oil products will find their way into the marketplace. More

Speaking before lawmakers, Reserve Bank of Australia (RBA) Governor Philip Lowe said how much further interest rates needed to increase would depend on developments in the global economy, how household spending evolved and the outlook for inflation and the labour market.”Based on the currently available information, the Board expects that further increases will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” Lowe said.”We will do what is necessary to make sure that inflation returns to the target range.”The central bank last week hiked interest rates by a quarter point to a decade-high of 3.35%, bringing its tightening since last May to 325 basis points. It also compounded the blow by flagging yet further increases would be needed to contain inflation, which is running at three-decade highs.Markets responded by raising the expected top for rates to around 4.1%, from 3.6% a month before, implying three more rate hikes are waiting in the wings. Lowe said it was still possible that the Australian economy was headed for a soft landing, especially if inflation and wage expectations remained contained. “But it is also possible that we are knocked off that narrow path,” he said. The fact that the Board met every month gave it frequent opportunities to evaluate how risks evolved and to respond flexibly, he added. More

OTTAWA (Reuters) -Bank of Canada Governor Tiff Macklem said on Thursday that the economy remains overheated and the jobs market is too tight, as he kept the door open to future interest rate hikes.On Jan. 25, the Bank hiked its key interest rate to 4.5%, the highest level in 15 years, and became the first major central bank to say it would hold off on further increases as long as prices eased as forecast.The bank forecasts inflation to slow to about 3% by the middle of the year from 6.3% in December, and to come down to its 2% target next year.Macklem reiterated the bank’s policy stance, but acknowledged the impact of last week’s strong January jobs report.”The labor market is just too tight. It does need to get better balanced,” Macklem said during testimony to the House of Commons finance committee. Canada added a massive 150,000 jobs in January, ten times expectations.The bank last month forecast the economy would stall and could tip into recession during the first three quarters of this year, but the jobs report showed demand is still strong.”The Canadian economy remains overheated and clearly in excess demand and this continues to put upward pressure on many domestic prices,” Macklem said.”The tightness in the labor market needs to ease, wage growth needs to moderate and service price inflation needs to cool” or else more interest rate hikes will be needed, he added.In a separate speech later in the day, Deputy Governor Paul Beaudry said the bank is committed to bring inflation back to target and will do so even if its policy-setting path diverges from central banks in other countries.The U.S. Federal Reserve has yet to pause and two Fed officials on Thursday said higher rates would be needed to tame inflation. At its last policy meeting, the Fed lifted its benchmark overnight interest rate by a quarter of a percentage point to the 4.50% to 4.75% range. Macklem was pressed to comment on the potential effects of the upcoming 2023/24 federal budget. “If government spending contributes more to aggregate demand at a time when we’re trying to cool the economy, then that wouldn’t be helpful,” he told the committee.Finance Minister Chrystia Freeland has said repeatedly that she will take a “fiscally prudent approach” to the budget, due out in March or April, so as not to make the central bank’s inflation-fighting job more difficult. More

WASHINGTON (Reuters) – The top Republicans on U.S. congressional foreign affairs and armed services committees pressed Democratic President Joe Biden on Thursday to include $2 billion in military assistance grants for Taiwan in his upcoming budget request.Representatives Michael McCaul and Mike Rogers (NYSE:ROG), chairmen of the House of Representatives Foreign Affairs and Armed Services committees, and Senators Jim Risch and Roger Wicker, ranking Republicans on the Senate Foreign Relations and Armed Services committees, asked Biden to include up to $2 billion in Foreign Military Financing (FMF) grants for Taiwan in his proposed budget for the fiscal year ending in September 2024.Congressional aides said they expect Biden to release the budget on March 9.In a letter to Biden, the four lawmakers called China’s build-up of its military capabilities and the recent incursion into U.S. airspace of a high-altitude surveillance balloon “a grave threat” to U.S. interests.They stressed the need to support Taiwan, an independently ruled island that China views as a breakaway province.”To stop these trends, the United States must act with urgency to defend itself and ensure our allies and partners have the capabilities they need to defend against the (Chinese Communist Party),” the letter said.Congress late last year overwhelmingly approved legislation authorizing $10 billion – or $2 billion per year for five years – of annual FMF grants for Taiwan. However, a spending bill passed at the end of the year did not include the money to fund the program.The White House did not immediately respond to a request for comment on the letter. More

(Reuters) – Global cryptocurrency exchange Binance had secret access to a bank account belonging to its purportedly independent U.S. partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, banking records and company messages show.Over the first three months of 2021, more than $400 million flowed from the Binance.US account at California-based Silvergate Bank to this trading firm, Merit Peak Ltd, according to records for the quarter, which were reviewed by Reuters. The Binance.US account was registered under the name of BAM Trading, the U.S. exchange’s operating company, according to the records. Company messages show the transfers to Merit Peak began in late 2020.Reuters couldn’t determine the reason for the transfers or whether any of the money belonged to Binance.US customers. The exchange’s public terms of use at the time said its customers’ dollar deposits were held at Silvergate and a Nevada-based custodian firm called Prime Trust LLC. Prime Trust made $650 million in wire transfer deposits into the Binance.US account during the quarter, the bank records show.A Binance.US spokesperson, Kimberly Soward, did not address Reuters’ questions about the transfers detailed in the bank records. In a statement, she said Reuters’ reporting used “outdated information” without elaborating further. She added: “Merit Peak is neither trading nor providing any kind of services on the Binance.US platform” and “only Binance.US employees have access” to the bank accounts of the U.S. company. Soward didn’t specify when Merit Peak’s activities ceased.The Binance global exchange, Binance CEO Zhao and Prime Trust did not respond to detailed questions about the transfers. A Silvergate spokesperson said the bank does not comment on individual customers.Binance.US’s executives were concerned by the outflows because the transfers were taking place without their knowledge, according to messages reviewed by Reuters. The CEO of Binance.US at the time, Catherine Coley, wrote to a Binance finance executive in late 2020 asking for an explanation for the transfers, calling them “unexpected” and saying “no one mentioned them.””Where are those funds coming from?” she wrote in one message.In a response to Coley, seen by Reuters, the Binance executive, Susan Li, did not explain the transfers. Li wrote that Merit Peak was a “vendor that facilitated trading” on Binance.US and also provided loans and capital injections to the American exchange.Coley, who left Binance.US later in 2021, didn’t respond to questions sent via her legal representatives. Li also didn’t respond.Reuters was unable to trace what became of the $400 million. An unspecified portion of the money was subsequently sent to the Silvergate account of a Seychelles-incorporated firm called Key Vision Development Limited, according to a person with direct knowledge of the transfers. A 2021 corporate filing by another Binance unit identified CEO Zhao as a director of Key Vision. A former Silvergate executive confirmed that Key Vision held an account at Silvergate at the time.Key Vision’s local registered agent did not respond to requests for comment.The money transfers suggest that the global Binance exchange, which is not licensed to operate in the United States, controlled the finances of Binance.US, despite maintaining that the American entity is entirely independent and operates as its “US partner.” The Department of Justice and the Securities and Exchange Commission have sought information from Binance and Binance.US about their relationship as part of ongoing investigations into potential breaches of financial rules, including whether Binance is using the American exchange as cover for doing business in the U.S. The SEC and the Justice Department declined to comment for this article.Reuters reported last year that Binance created Binance.US as a de facto subsidiary in 2019 in order to draw the scrutiny of U.S. regulators away from the global exchange. Binance.US’s operator, California-based BAM Trading Services, is registered with the U.S. Treasury as a money services business, a category that includes foreign currency traders and money transmitters. BAM’s beneficial owner is Zhao.Binance.US’s chief financial officer, Jasmine Lee, told the Wall Street Journal on Feb. 8 that “the extent of our relationship” with Binance.com is a shared name and a licensing agreement for technology. “We do not transfer our funds back and forth,” Lee said.Susan Li, the Binance finance executive, had access to the Binance.US Silvergate account, however, along with several senior Binance.US employees, according to the messages and the person with direct knowledge of the transfers. In one message, a Binance.US finance manager asked Li to give another Binance.US employee authority to approve payments from the account. A 2021 Binance.US document that described the American exchange’s technology architecture identified Silvergate as a payment channel controlled at the time by Binance.com.The Binance.US account records reviewed by Reuters detail each transaction between January and the end of March 2021. Reuters has not reviewed account records for other periods.The transfers to Merit Peak took place on the bank’s proprietary Silvergate Exchange Network (SEN), which Binance.US joined in November 2020 to serve its corporate clients. SEN allows these clients to transfer dollars between their accounts at the bank. Silvergate’s investor prospectus says SEN transfers are “push only,” which means they must be authorized by the account’s controller.The former Silvergate executive told Reuters the movement of funds from a company account without approval of that firm’s management would be a breach of the bank’s compliance rules. Silvergate’s prospectus says “multiple steps are required to create, authorize and approve a SEN transfer.” The Silvergate spokesperson didn’t address the transfers in their response to Reuters.Over the January-March 2021 quarter, the Binance.US account received $1.3 billion in SEN transfers from corporate clients trading on Binance.US, along with the $650 million in wire transfer deposits from Prime Trust.BLACK BOXThe role of trading firms at crypto exchanges such as industry leader Binance has been under scrutiny since rival FTX collapsed in November. Trading firms often play a “market-making” role, typically buying and selling assets to deepen an exchange’s trading volume and thus facilitate dealing. The market maker profits from the difference, or “spread,” between the prices bid by buyers and asked by sellers.The SEC has accused FTX founder Sam Bankman-Fried of secretly diverting billions of dollars in customer funds to his trading firm, Alameda Research, which functioned as a market maker on the exchange. Alameda received “undisclosed special treatment” on the FTX platform that concealed the flows, the SEC alleged in its December complaint against Bankman-Fried, who has pleaded not guilty.The SEC’s chair, Gary Gensler, told Bloomberg TV on Feb. 10 that crypto exchanges, in general, were “co-mingling customer funds with their businesses” by also operating as broker-dealers and hedge funds that were trading against their own clients. He didn’t single out Binance or other exchanges in his comments, but said firms should expect more enforcement actions by the agency.”We don’t let the New York Stock Exchange also run a hedge fund and trade on the exchange. Why would we do it here?” Gensler said.Among the dealers on Binance.US was Merit Peak, according to company messages, the trading firm managed by CEO Zhao.Binance.US employees had little visibility into how Merit Peak was executing trades, the person with knowledge of the transfers said, because the software that matched customers’ orders was managed by Binance as part of the technology licensing agreement between the two exchanges. The document that described Binance.US’s technology architecture designated this software as “BlackBox” because, ex-staff said, Binance.US employees didn’t know how it functioned.Former regulators, along with former executives at Binance and Silvergate, told Reuters that Merit Peak’s role on Binance.US created potential conflicts of interest between the exchange and its customers because Binance.US disclosed no information about Merit Peak’s activities or its owner. The SEC described Merit Peak as a Binance entity when it sought information about the trading firm as part of a subpoena issued to Binance.US in December 2020.”When you have that lack of transparency, you don’t know if Binance customers are being disadvantaged,” said Howard Fischer, a former senior SEC trial counsel and now a partner at U.S. law firm Moses Singer.Merit Peak was incorporated in the British Virgin Islands in January 2019. That December, Zhao signed a purchase agreement for Merit Peak to invest $1 million into Binance.US operator BAM Trading’s holding company in return for a portion of the holding company’s preferred shares. The agreement identified Zhao as Merit Peak’s “Manager.”The BVI corporate registry does not name Merit Peak’s directors or shareholders, and only identifies its local registered agent. The agent did not respond to requests for comment about Merit Peak’s ownership. Like Binance.US, Binance too has not provided any public information about Merit Peak, nor mentioned it in submissions to regulators and corporate registries that were reviewed by Reuters. The 2021 document that described Binance.US’s technology architecture noted that an unidentified “Market Maker” was under the control of Binance.com. In a Twitter Spaces event last November, Zhao said he was a shareholder in one unspecified market maker, but stressed that it did not earn profits and was “just providing liquidity in the market.”The SEC’s subpoena, addressed to Coley, requested information on all of Binance.US’s market makers, their owners, and their trading activity. The Wall Street Journal reported the subpoena last year. Reuters could not establish how Binance.US responded to the SEC.Binance.US and Binance didn’t respond to Reuters’ questions about the SEC’s case, but Binance’s chief strategy officer, Patrick Hillmann, told the Wall Street Journal on Wednesday the company was “working with regulators to figure out what are the remediations” to resolve investigations. The Justice Department is also investigating Binance for suspected money laundering and sanctions violations, Reuters has previously reported.Silvergate, the bank used by Binance and other crypto exchanges, is also drawing scrutiny. It is under investigation by the Justice Department’s fraud section, which is examining Silvergate’s hosting of accounts tied to Bankman-Fried’s businesses. Silvergate didn’t comment and the Justice Department declined to comment.After this article published, Silvergate’s shares extended losses, hitting a daily low of $17.35, and were last down around 22%. They have fallen 86% over the past year.”STEADY CASH DRAIN”Coley announced Binance.US had joined the Silvergate Exchange Network in November 2020, telling a crypto news outlet, “We’ve launched SEN for our corporate clients.”Merit Peak gave Binance.US $5 million to fund the “minimum balance” of the exchange’s new SEN account, according to a message a senior Binance.US employee later sent to counterparts at Binance.com. The transfers to Merit Peak began soon after, the messages show.Coley, on the morning of Dec. 23, flagged a “very large withdrawal” by Merit Peak of $7.5 million from the Binance.US account. Binance.US staff referred to the transfers to Merit Peak as “withdrawals,” messages show, because Binance.com employees were initiating them.”This transaction is unexpected,” Coley wrote. As a result, she told Susan Li, who was named as team leader of Binance’s finance department in a company employee list that year, that Binance.US’s SEN account had hit its daily withdrawal limit of $10 million and she would lift the threshold to $20 million.Coley asked Li to advise Binance.US staff in the future when the SEN account was close to hitting its limit. “Given we do not have portal access, can we have eyes and ears helping us,” she messaged. She didn’t identify the portal, but Silvergate says SEN accounts can be accessed via an “online banking portal.”Coley followed up with Li again later that day. “Can you explain more – maybe over the phone – about the flows that are happening via SEN? I want to understand them better as no one mentioned them until today when they got caught in our limit,” Coley wrote.”Who is directing this?” Coley asked, noting that other senior Binance.US employees were not aware of the transfers either.Li replied in a message to Coley that Merit Peak’s role was as an “OTC vendor.” She didn’t elaborate or directly address Coley’s questions.In OTC or over-the-counter trades, two parties agree on a price outside an exchange. Reuters could not establish what trades Merit Peak was involved in. But in a message to a colleague in early 2021, seen by Reuters, a senior Binance.US employee said Binance.com was sending crypto to Binance.US to sell to American traders, and then “withdrawing” the income via Merit Peak. This led to a “steady cash drain out of SEN,” despite a booming crypto market, the employee wrote.From January to March 2021, the account records show that Merit Peak received 89 transfers from the Binance.US SEN account totalling $404 million. Over that period, Merit Peak made four payments into the Binance.US account, for a total of around $160,000.The transfers to Merit Peak were almost all for precise million-dollar figures, made at one- or two-day intervals. These transfers often immediately followed a deposit into the Binance.US account by Prime Trust, the crypto custodian firm for Binance.US client funds.Merit Peak then transferred funds from its Silvergate account to the account belonging to Key Vision, the Seychelles firm, said the person with direct knowledge of the transfers.Reuters was unable to determine why the money was moved around in this way.That year, Binance.com was also directing international customers on its platform to deposit dollars into Key Vision’s Silvergate account, according to screenshots of the instructions posted on a crypto blog. The Seychelles’ business registry says Key Vision, which was incorporated the same day as Merit Peak, remains active and is in “Good Standing.”Binance.US in April 2021 unexpectedly announced it would replace Coley as CEO. She has not made any public statements since leaving. More