Thiel-Backed Erebor Bank Bets on Underbanked Innovation Economy

A group of tech billionaires led by Palmer Luckey, co-founder of military contractor Anduril, is launching a new bank designed to serve startups and cryptocurrency businesses left underserved since Silicon Valley Bank's (SVB) collapse, the Financial Times reported .

The bank, named Erebor after the "lonely mountain" in J.R.R. Tolkien's The Lord of the Rings , has applied for a national bank charter and counts prominent Trump donors among its backers, including Joe Lonsdale, founder of venture capital firm 8VC and Palantir co-founder.

Peter Thiel's venture capital fund Founders Fund is also among the investors, according to people familiar with the matter cited by the FT.

Luckey and Lonsdale are not expected to be involved in day-to-day management, according to people familiar with their plans. The bank will be run by co-CEOs Jacob Hirshman, who previously worked as an adviser at crypto group Circle, and Owen Rapaport, co-founder and CEO of digital assets software company Aer Compliance.

Mike Hagedorn, former senior executive vice-president at Valley National Bank, will serve as president. The bank's headquarters will be in Columbus, Ohio, with an additional office in New York.

Targeting Innovation Economy

Erebor aims to fill the banking gap left by SVB's 2023 collapse , which had served as the primary lender for U.S. startups and venture capital firms. The bank's application states it will provide "traditional banking products, as well as virtual currency-related products and services, for businesses and individuals."

The target market includes businesses in the U.S. "innovation economy," particularly tech companies focused on virtual currencies, artificial intelligence, defense and manufacturing, according to the filing. The bank also plans to serve individuals who work for or invest in these companies, as well as non-U.S. companies seeking access to the U.S. banking system.

Erebor said it would differentiate itself by working with customers that "are not well served by traditional or disruptive financial institutions, in particular with respect to insufficient access to credit," the FT reported.

Stablecoin Focus

Cryptocurrencies known as stablecoins, which are pegged to real-world assets like the dollar, are expected to be a significant part of Erebor's operations. The application states the bank aims to be "the most regulated entity conducting and facilitating stablecoin transactions."

The timing aligns with increasing regulatory clarity around stablecoins, as Congress advances legislation to establish comprehensive federal oversight of the sector.

Digital-First Approach

Erebor plans to offer digital-only customer service, marketing all products and services through a smartphone app and website. The approach reflects the changing expectations of tech-savvy startups that formed SVB's core customer base.

The bank's founding team first discussed launching the venture after SVB's collapse in 2023. While First Citizens acquired SVB's assets and relaunched the brand, and some bankers moved to HSBC, investors and executives have complained about insufficient banking services for emerging tech companies.

Part of Erebor's application was submitted confidentially, including details about shareholders, equity structure and business plan, leaving the full scope of the venture's backing unclear.

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