The two main banking partners of the crypto companies, Silvergate and Signature Bank, are also feeling the damage of a crypto market that will have experienced one of the worst years in its young history. Cornered, they would appeal to the FHLB for large loans.
Silvergate and Signature Bank, main partners of crypto companies through their real-time payment system
The US banking system does not operate on a real-time payment system, a problem for an asset class like cryptocurrencies that trades relentlessly. Also, too, Silvergate and Signature Bank have each developed a system that allows transactions to be made instantly and at any time, SEN for the former, Signet for the latter. A boon for cryptocurrency players who used their services heavily and a deal that seemed to work perfectly as long as the market was in a bull cycle.
But as the prices of bitcoin and others have plummeted, and even worse as the cascading bankruptcies of cryptocurrency companies have strained the machine, the situation has become tense. Silvergate posts a $1 billion loss, beating already bleak forecasts.
As for Signature, which weighs significantly more than Silvergate in terms of asset management across all classes but which had fewer cryptocurrency-related clients, announces a cheerier balance sheet with more than 300 million net profits in the fourth quarter of 2022, but the deposits from cryptocurrency companies. A situation that seems to rather solve it, its CEO said shortly after the fall of FTX (client of Signature), that his bank “wasn’t just a crypto bank” and that this had to be known.
The 2 crypto-banks have taken out loans from the FHLB
Done, unlike Silvergate, which intends to stay in the cryptocurrency sector, Signature wants to distance itself from it. Latest evidence of his desire to retire: the restrictions placed on Binance users.
One of our trusted banking partners, Signature Bank, has stated that it will no longer support any of its cryptocurrency exchange customers with buy and sell amounts below USD 100,000 starting February 1, 2023.
But while its financial health looks healthier than Silvergate’s, its stock market situation is more problematic, with its shares down 64% last year according to Bloomberg. Like its counterpart, it would therefore have resorted to the support of the Federal Home Loan Banks, a consortium made up of a dozen banks which, under the aegis of the federal government, grants loans to institutions. Thus, according to an article in Wall Street Journal (wsj extension), Signature Bank reportedly received nearly $10 billion in loans and Silvergate, $3.6 billion.
A situation feared by US banking regulators, haunted by the specter of contagion. Earlier this month they had once again rang the alarm bells, no doubt informed of the initiatives of the two banks, urging the banking institutions to limit their foray into the cryptocurrency industry.
It remains to be seen how the latter will take this new blow.