
Signature Bank and Silvergate, the two largest crypto banks, have secured billions in loans from the Federal Home Loan Banks, a system originally designed to support housing finance and community investment.
according to saturday report good From The Wall Street Journal, Signature Bank will receive about $10 billion in loans from its local home-loan bank in the last quarter of 2022, while Silvergate will receive at least $3.6 billion.
Signature’s loans are more than double their previous high in several years, the report said, while 2022 marks the first year for Silvergate to tap home-loan banks.
The Federal Home Loan Banks are 11 US government-sponsored banks that provide loans to institutions. Established during the Great Depression, the system has $1.1 trillion in assets and more than 6,500 members and was originally designed to support housing finance and community investment.
While FHLBs providing loans to other financial institutions is not out of the norm, some market participants have warned that lending to crypto-exposed banks could spread the crypto infection to traditional finance companies as well.
Senator Elizabeth Warren, who has been an outspoken critic of the crypto industry, expressed concern about the growing ties between crypto-exposed banks and Tradefi companies. In comments to the WSJ, she said:
“This is why I have been warning about the dangers of allowing crypto to become intertwined with the banking system. Under no circumstances should taxpayers be left holding the bag for the collapse of the crypto industry – a market fraud, money laundering And finance full of illegal.”
Signature Bank and Silvergate turned to home-lending banks after the collapse of crypto exchange FTX last year eroded user confidence in the industry and led to a spike in withdrawals.
As mentioned, Silvergate faced a bank run After the collapse of FTX. In addition to taking on loans, the crypto bank also had to sell $5.2 billion worth of debt securities that were in significant losses on its balance sheet to cover about $8.1 billion in user withdrawals. As a result, it incurred a loss of $718 million, which reportedly exceeds the bank’s total profits since 2013.
Furthermore, Silvergate only had $3.8 billion in deposits at the end of 2022, compared to $11.9 billion in 2021. Similarly, Signature deposits fell from $89 billion last year to around $103 billion by early 2022.
Recent developments in the crypto market have also prompted some banks to exit the crypto space. Moonstone Bank, a digital bank focused on serving high-net-worth individuals, is a bank that has announced that it would refocus on the role of a “community bank”.
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